VC “Magic Ratios” Revealed
- June 24th, 2008 /
Today I came across a blog post by Steve Barsh in which he posted his slide deck from a talk he’s gave in SF recently.
Flipping through the deck, I came across one of the most straightforward and insightful presentations of the numbers that a VC is basing investment decisions on, often called “magic ratios.”
If you are trying to raise $2 mil from a VC at a $5 mil valuation, you will need to be able to show a path to a $100 mil exit in 5 yrs to show a 10x return assuming 50% dilution through future rounds.
The implication of this is very clear. It’s easy to talk about raising $2 mil, but you need to be focused on whether there is an exit for your company at $100 mil, and how you are going to get there. That’s what your VC is thinking about.
Check out slide 4 of the slide deck embedded below. Thanks for the insight & clarity Steve.
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Jul 07, 2008 at 11:23 am
This is great info.
Word to Market Research. Most folk’s business plans (those that still do the excersize) completely avoid this part, because it’s hard and annihilates most business ideas.