What is the minimum projected annual revenue in the exit year and projected exit valuation for a startup to be investable from a VC?
For most “traditional” U.S. VCs doing early-stage investment, the goal is simple:
- At least 1 investment out of every 20 or so per fund needs to be worth $1 Billion or more within 10–15 years.
If that happens, the math generally works out. If there is more than 1 “Unicorn” per fund (i.e., per every 15–30 investments), even better. If there is a “Decacorn” (i.e., worth $10 Billion+), then the fund makes a lot of money.
So VCs are thinking that when they meet you. Is there a 5-10% chance this investment might be worth $1B+? Or more subjectively, is there a real chance, given the team, the market, and the very early traction?
If so, it’s a good bet.
In terms of what that means for revenue … translate that to say $100m ARR. So if 1 core investment out of 20 gets to $100m+ in revenue in 5-8 years, the fund will do OK. And you’ll also see what matters less than how much revenue you have today … is how quickly you are growing. This is why in today’s world of Cloud decacorns, you’ll see seemingly crazy valuations for folks with, well, crazy growth.
More of this math here: Why VCs Need Unicorns Just to Survive | SaaStr