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Turnover prediction for VC’s

We have a working product (SaaS) but we need some funding in order to continue. We also have first clients and the product has big potential. However, we would need a lot more resouces to get things off the ground.

How much revenue should I plan for where VC’s are interested in the product. My predictions could widely range from 4M/year to 40million/year. Its really depends how the market reacts to it and how well we can improve the product.

  • You should make your pitch to VCs such that you can demonstrate how they’re going to make a good return.

    Let’s do the math. If your best case scenario is a 4M/year revenue then a typical exit (semi-aquihire) will be for 20-30M. So if you do a $2M series A in exchange for 20%, then the VC will get 6M after a 30M exit. A 3x return is a joke for the VC. They want 10x, with a shot for a 50x or 100x unicorn.

    So any presentation based on a 4M/year revenue forecast is going to get you rejected instantly.

    If you can predict 40M/year revenue in 7 years then there’s room for the VC to get their return, even if there are multiple rounds w/ dilution. It’s completely OK to be creative with your estimates to get at an attractive forecast.

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  • I agree on your math. However, I am not planning to raise 2m$ but rather 400-600k. This would give it a multiplier of around 10x.

    My plan was / is to start small first and if we can get to profit fast – rather go for a bank loan as it would be cheaper than the VC.

    Is this the right way ?

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    • For SaaS companies short term profitability always happens the expense of growth. Mediocre growth means no VC money, ever. It’s really that simple.

      However, if you run your SaaS shop well you’ll still make bucket-loads of money, and it doesn’t take much capital to get there. Raising 600k from angels shouldn’t be a problem (easier in the US than in EU) if you have a good deck. You won’t get a 600k bank loan if your business has no assets that can be liquidated during bankruptcy. The downside of creating a medium-growth but profitable company is that you’ll have to run it for the better part of a decade and you’re unlikely to sell the company for more than 3x revenue at the end. You also won’t be able to hire the best people if you’re not a high growth company (no stock options, no CV prestige, less intellectually challenging work).

      If you want to shoot for the moon forget about bank loans or profitability. Raise money (angel or series A, depending on where you’re at), hire like crazy, grow like crazy, and so on. Failure is likely, and the stress will cost you.

      I’ve seen too many people mess up by trying to do something in between a high-octane startup and a lifestyle business. You’ve got to choose one, and it looks like you’ve not come to terms with this yet.

      Reply

  • VCs don’t care about revenue projections, focus on:

    – what is the market opportunity?

    – how big is it? why is it underserved? why is now a good time to serve it?

    – what unfair advantages do you and your team have to succeed?

    – what have you proven so far with beta customers?

    – what unfair advantages do you have to get users?

    At this stage what they look at is (in this order) – market, team, product, traction. If you have strong team or traction, it shouldn’t be a problem for you to raise money.

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