Startups Stack Exchange Archive

VC form: “How much money can this venture make within 5 years?” How to answer?

I found this question in a from to raise investment for my startup. I am in the idea phase, looking for funding to start the product. How do I answer it?

Answer 9383

The question is there to determine if:

  1. You any market research to begin with.
  2. You know your market and its associated risks well.
  3. Determine whether you’re too small fry for the VC or not.

You’re likely unable to answer the question because you haven’t researched your market enough yet. As such:

  1. Go out in front of potential clients.
  2. See how much/little interest they express.
  3. See how easy they’re to close or not.
  4. Do your best to assess how many have a similar profile.
  5. Work out how you can reach them with the budget you’d end up with after raising funds (think in terms of what input gives me what output, rather than a wishful % growth per month).
  6. Factor in any risks (e.g. discount whatever market share your competition might lock in).
  7. Sum over 5 years.

As a last step, keep the point about being too small fry in mind. If you are you’ll get turned down. Research your potential investor and the type of business they’re normally into. If you’re not a good fit for them, could you grow faster with more cash?

One point I’d really insist on: beware of wishful thinking. Don’t show up saying tripe like “we’re going to grow a steady 10% month over month” without explaining me precisely how you intend to miraculously do that. You won’t stand a chance. Think more in terms of “a new content marketer at this stage will allow to create that much more content and grow our organic traffic by so and so more each month” or “we hope to have a well understood sales process at this stage, so we’ll hire our first sales or two, allowing us to scale to X new deals per month once they’re trained”.

All content is licensed under CC BY-SA 3.0.