Finding your simple startup math to close investors and grow faster

I heard three software startup investor “pre-pitches” in the last few weeks that all had the same big problem.

They were missing the simple startup math story about getting their first customers, creating early revenues, growing up in stages, and getting to a successful exit.

You say you don’t have customers or revenues yet, but someday your company will be big and pay back investors when you sell it?

OK. Explain how you get there in simple terms. Like this:

1) Here’s how we get our first 20 customers who pay “about this much” on average in a year without major outside investment.

2) Here’s how we get to $50K of reasonably predictable monthly revenue that doesn’t cost too much to acquire.

3) Here’s how we get to $1M-$2M of revenue with “this number” of mostly happy customers. First signs of real product-market fit.

4) Here’s how we get to $5M or $10M revenue a year with “about these numbers” of happy employees, customers, and partners. Plus the ability for your business to grow much bigger as a market leader.

5) Here’s the type of business that is likely to pay a lot to acquire businesses like ours eventually (if you’re not on the unicorn/IPO track).

All the exciting things you say in your pitch are just blah-blah-blah if you can’t walk me through your simple math of growing your startup idea into an actual business that someday can be very valuable to others.

That’s the actual game you are playing, whether you raise outside funding or not!

B2B SaaS founders can do this math pretty easily using their average ACV, number of customers, and growth rates. Exit multiples are pretty well known in SaaS too.

Tech businesses that don’t have recurring revenues need more explanation than SaaS companies.

This includes media companies that monetize traffic, fintech companies with transactions, one-time app or consumable purchases, or project-based tech-enabled services. They all need a simple and stronger story from startup to growth and exit multiples.

  • How many customers do you need to get to $1M revenue?
  • What’s a typical multiple to acquire companies like this right now?
  • About how many employees will you have at $5M revenues?

If you can’t answer those quickly and confidently, then you’re trying to raise money without knowing what your business is at the core.

Your simple math and the startup-to-scale stories don’t need to be detailed, perfect, or proven.

They just need to be clearly understandable to you, the founder, and to serious investors if you go that route.

Any investor should be to be able to repeat your simple math story to another person (spouse or investment partner) a week later and be excited about it.

Can you see how having a traction “headstart” with measurable customers, revenues and growth makes your pitch much more credible and obvious?

I invested in 8 software startups in the last year. I can repeat every one of their simple math stories to another person.

What’s your simple math startup story?

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