Rules Of Thumbs

Venture Capital Market Size Criteria Rule of Thumb

Nov 03

adminStartup, Valuation, Venture Capital 10x, Investment, Market Size, Return, Rule of Thumb, Venture Capital 3 Comments

Venture capitalists typically seek a 5x-10x return on their investment. I have used a Rule of Thumb I have coined the “Factors of 10′s”. It goes like this: If a VC wants a 10x return on a $6 million investment (for, say, 60% of the company)

• The VC would need to cash out at $60 million
• Which implies that the company would have to be worth $100 million when sold
• And the entrepreneur’s company aims for 10% of the addressable market
• The company would need revenues of perhaps $50 million (for a valuation of 2x Revenue)
• Which implies a total addressable market size of $500 million, or an addressable market of 10x the company’s revenues.

This is based on a lot of broad assumptions, especially that the company would not need any further funding.