
Ask HN: If your biz plan tops out at $10m/yr revenue is it too small for VCs? - sharemywin
How about incubators or accelerators?
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patio11
A company which can't grow to $100 million a year is generally uninteresting
to VCs, because that's approximately what they need to achieve to make their
economics work out. They can tolerate base hits but that doesn't mean they
endorse bunting as a strategy.

PG and Naval Ravikant have written extensively about what drives the math
here, but it's essentially 1) limited number of board seats available per LP
at a fund, 2) target ownership percentage that has to imply, and 3) rarity of
Google and Facebook relative to all the companies which did not drive the
returns of the entire VC industry.

You can hand-simulate the math: if you invest $5 million at a $20 million pre
and expect 3 investments to fail, 3 to 2X, 3 to 5X, and 1 to 10X your
investment, then you're hoping to sell for $100 million to $200 million
(factoring in dilution). It's generally difficult to sell for $100 million
with single-digit million revenue unless something _very_ interesting happened
in R&D.

Angels have very, very different incentives and, relatedly, prices they get to
invest at. They can have very, very happy results with companies which are
doing, say, $1 million to $5 million in revenue.

Accelerators/incubators are a mixed bag. In general, if they invest in you at
low-enough valuations, then smaller exits work out pretty decently for them,
particularly if you can get them at scale. 500Startups is pretty explicit
about small exits being a planned-for driver of their strategy. YC has not, to
my knowledge, been explicit about that, and to the extent they talk about
desired company sizes tend to talk about Dropbox/Airbnb/etc.

An elephant in the room: it is highly unlikely that people can adequately
predict the size of a market at the business plan stage. PG has a good example
here: it doesn't sound like a company founded to write Altair Basic obviously
has an eventual enterprise value of $400 billion.

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tptacek
The question isn't whether your "business plan" tops out at 10MM/yr, but
whether _you want it to_.

Scaling a profitable business to 10MM is a shitload of work. There are people
who invest that kind of work because they want control over their life and
don't want the ( _innumerable_ ) headaches that come from scaling a business
to 100MM.

If that's you, you don't want outside investors of really any kind.

However, because so few people are actually able to scale a business to 10MM,
being able to do that will add significant credibility to a claim of being
able to scale to 100MM.

There's a pretty famous YC strategy of backing companies that can own up a
small niche in the market, on the premise that what they learn in the process
of doing that will teach them how to take over a larger market.

So if you're looking to raise money and your plan takes you to 10MM, consider
changing your pitch so that the 10MM market is a stepping stone towards a
larger one.

~~~
sharemywin
I guess I spent too long doing agile development. What's the point in making a
plan to 100m when it's all going change anyway.

~~~
tptacek
There isn't one. That's the point. If you want to raise money:

* Don't _plan_ on stopping at 10MM, because there aren't that many investors that can make money on a company that is has a steady-state top line of 10MM.

* Pitch your current market as an obtainable beachhead, not the long term endpoint.

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sharemywin
The market is much bigger but are VCs only interested in large portions of
large markets or if you have some idea of how to get to $5-10m with investment
is there options? how much traction would you need?

