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How the Investor Can Make a Return
A good business is not always a good investment if nobody wants to buy it. Conversely, a stupid business can be a great investment if someone wants to buy it.
Founders often focus on how great the business and the product are. Yet the pitch needs to answer the question: Is this a good investment?
It involves several factors:
- Probability of reaching a liquidity event.
- How long until liquidity
- Expected valuation at liquidity.
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The right time for acquisition
For investors, the right time for acquisition is as soon as the startup has achieved enough success to attract a big company to acquire it. It means an APR of $25-$50 million, but is dependent on the market.
A typical target for acquisition is three to five years from seed round, but it could be longer.
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The exit strategy
On your pitch to investors, the exit strategy slide is:
- A list of companies that should be interested in acquiring your startup
- Other startups acquired in the same space
- Metrics for those acquisitions as multiple of sales
- Average acquisition price in your industry as a multiple of sales
Combining this multiple with your revenue projections from the previous slide will provide an estimate of the expected company valuation over time.
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IDEAS CURATED BY
Tiffany Miller's ideas are part of this journey:
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