Before we jump in, a big shoutout to whomever submitted us to FeedSpot’s Top 25 Corporate Finance blogs. In the words of Pete Davidson:
Let’s celebrate this week with another LIST.
TL;DR: In most markets, rapid growth is the north star for attracting venture funding and premium valuations. This post covers three mathematical rules of thumb to gauge your growth.
Triple, Triple, Double, Double, Double: Grow to ~$100M in revenue in just five to six years by following this annual compounding pattern.
The Mendoza Line for VC Funding: Grow at least ~85% of your previous year’s growth rate to stay on VC radars.
Monthly Compounding to 100% growth: Growing 6% month-over-month is the same as growing 100% year-over-year.
Triple, Triple, Double, Double, Double your way to $100M in revenue in five to six years.
The concept is SaaS businesses can follow the “T2D3” growth pattern and go from $1-$2 million to over $100 million in annual recurring revenue (ARR) in just 5-6 years…and as a result, earn a +$1 billion valuation.
If you can scrape and claw your way to $1.5M in ARR, in successive years you’ll want to:
Triple to $4.5 million
Triple to $13.5 million
Double to $27M
Double to $54M
Double to $108M
As you can see from the chart above, it’s a well trodden path for successful software companies who went from seven to nine figure top lines in just a handful of years, and then transitioned to hyper growth in the public markets.
The Mendoza Line for VC Funding: Grow at least ~85% of your previous year’s growth.
Mario Mendoza was a light-hitting shortstop in the late 1970’s who failed to achieve a batting average above .200 five times in his nine big league seasons.
He basically did the absolute bare minimum to stick around in the big leagues. The equivalent of the Mendoza line for venture backed companies is to grow at least 85% of your prior year’s growth rate.
This is because the bigger you get, the harder it is to maintain growth in each successive year, as your base gets bigger. Therefore, your goal should be to slow the pace at which your growth declines over time.
To have a feasible shot at going public, which is a rough yard stick for most VC’s, they need to believe there’s a path to at least $100M in annual revenue. The graph above shows how you can get there growing 85%ish percent of the preceding year. So if you’re looking to attract funding, make sure your resources are aligned to deliver a long term forecast where growth slows no faster than 85% year-over-year.
Monthly Compounding to Annual Results: Growing 6% month-over-month is the same as growing 100% year-over-year.
If you’re in hypergrowth mode and looking to double each year, a quick check to see if you’re on track is if you’re growing sequentially by +6% each month. This compounds to 100% by year end.
When targets are high and seemingly built on hope, a hunch, a pack of smokes, and an excel workbook with external links, it can be comforting to break the climb into more digestible chunks. In this instance, 6% per clip gets you to 100% Y/Y growth.
And 3.5% a clip gets you to 50% Y/Y growth.
Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it.
-Albert Einstein, not a Salesforce Admin
Potentially Reliable Stuff I Read at 2AM (Sources)
Triple, Triple, Double, Double, Double - Battery
Triple, Triple, Double, Double, Double - Fuse Bill
The Mendoza Line in baseball - Wikipedia
The Mendoza Line in Private Equity - Tech Crunch
This Week’s Company to Keep an Eye out For
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