When investors look at your deck, they’re not looking for a good, profitable business. They’re looking for that needle in the haystack that will be the one investment in their portfolio that will return 100x or more and make their fund a success.

Key Point

<button>547</button>11<figure><picture><source srcset="https://miro.medium.com/v2/resize:fit:640/format:webp/0*uGA7cPWoLqJGO3cq 640w, https://miro.medium.com/v2/resize:fit:720/format:webp/0*uGA7cPWoLqJGO3cq 720w, https://miro.medium.com/v2/resize:fit:750/format:webp/0*uGA7cPWoLqJGO3cq 750w, https://miro.medium.com/v2/resize:fit:786/format:webp/0*uGA7cPWoLqJGO3cq 786w, https://miro.medium.com/v2/resize:fit:828/format:webp/0*uGA7cPWoLqJGO3cq 828w, https://miro.medium.com/v2/resize:fit:1100/format:webp/0*uGA7cPWoLqJGO3cq 1100w, https://miro.medium.com/v2/resize:fit:1400/format:webp/0*uGA7cPWoLqJGO3cq 1400w" sizes="(min-resolution: 4dppx) and (max-width: 700px) 50vw, (-webkit-min-device-pixel-ratio: 4) and (max-width: 700px) 50vw, (min-resolution: 3dppx) and (max-width: 700px) 67vw, (-webkit-min-device-pixel-ratio: 3) and (max-width: 700px) 65vw, (min-resolution: 2.5dppx) and (max-width: 700px) 80vw, (-webkit-min-device-pixel-ratio: 2.5) and (max-width: 700px) 80vw, (min-resolution: 2dppx) and (max-width: 700px) 100vw, (-webkit-min-device-pixel-ratio: 2) and (max-width: 700px) 100vw, 700px" type="image/webp"><source data-testid="og" srcset="https://miro.medium.com/v2/resize:fit:640/0*uGA7cPWoLqJGO3cq 640w, https://miro.medium.com/v2/resize:fit:720/0*uGA7cPWoLqJGO3cq 720w, https://miro.medium.com/v2/resize:fit:750/0*uGA7cPWoLqJGO3cq 750w, https://miro.medium.com/v2/resize:fit:786/0*uGA7cPWoLqJGO3cq 786w, https://miro.medium.com/v2/resize:fit:828/0*uGA7cPWoLqJGO3cq 828w, https://miro.medium.com/v2/resize:fit:1100/0*uGA7cPWoLqJGO3cq 1100w, https://miro.medium.com/v2/resize:fit:1400/0*uGA7cPWoLqJGO3cq 1400w" sizes="(min-resolution: 4dppx) and (max-width: 700px) 50vw, (-webkit-min-device-pixel-ratio: 4) and (max-width: 700px) 50vw, (min-resolution: 3dppx) and (max-width: 700px) 67vw, (-webkit-min-device-pixel-ratio: 3) and (max-width: 700px) 65vw, (min-resolution: 2.5dppx) and (max-width: 700px) 80vw, (-webkit-min-device-pixel-ratio: 2.5) and (max-width: 700px) 80vw, (min-resolution: 2dppx) and (max-width: 700px) 100vw, (-webkit-min-device-pixel-ratio: 2) and (max-width: 700px) 100vw, 700px"><img alt="" width="680" height="452" src="https://miro.medium.com/max/500/0*uGA7cPWoLqJ"></picture><figcaption class="og fe oh ns nt oi oj be b bf z dt" data-selectable-paragraph="" dir="ltr">Photo by <a class="af ok" href="https://unsplash.com/@elimendeinagella?utm_source=medium&amp;utm_medium=referral" rel="noopener ugc nofollow" dir="ltr">Elimende Inagella</a> on <a class="af ok" href="https://unsplash.com/?utm_source=medium&amp;utm_medium=referral" rel="noopener ugc nofollow" dir="ltr">Unsplash</a></figcaption></figure>You have a great product that customers are clamoring for. The business plan looks fantastic. Now you just need funding to get the product to market.You begin pitching to angels and VCs but aren’t getting any bites. Why isn’t anyone interested?It’s all about venture math.The business plan shows you reaching $20M in revenues in 7 years. You want to raise $2M now on a $10M valuation.The business will generate $5M a year in profits, you predict. Isn’t this a fantastic opportunity?Well…no.If the startup does generate $5M in profits annually, regular accounting math says it’s a great business for the founders. But venture math shows why it’s a poor opportunity for venture investors.<h1 data-selectable-paragraph="">Venture Math Assumptions</h1>When investors look at your deck, they’re not looking for a good, profitable business. They’re looking for that needle in the haystack that will be the one investment in their portfolio that will return 100x or more and make their fund a success.Venture investors (VCs and angels) invest in startups based on the following fundamental assumptions.<h2 data-selectable-paragraph="">Investments can’t be monetized until the startup exits</h2>Unlike investments in public companies, real estate, crypto, artwork, race horses, or just about anything else, investments in startups can’t be sold or traded until either (1) the startup is acquired, or (2) the startup completes an IPO making the stock publicly tradable. Until that exit, which won’t come for many years, my investment is nothing but a line on your cap table.<h2 data-selectable-paragraph="">Venture funds have a 10 year lifetime</h2>Money is collected at the beginning of the fund, investments are made over the first 3 years, and at the end of 10 years, the fund is shut down. Startups therefore need to be able to exit within 5–7 years of investment. Angels have more flexibility, but we’d like to see a cash return on our investment sometime before we die.<div>Create an account to read&nbsp;the&nbsp;full&nbsp;story.</div>The&nbsp;author made this story available to&nbsp;Medium&nbsp;members&nbsp;only. If you’re new to Medium, create a new account to read this story on us.

You have a great product that customers are clamoring for. The business plan looks fantastic. Now you just need funding to get the product to market. The business plan shows you reaching $20M in…

crypto

Cryptocurrency

moneyandinvestments

Money & Investments

entrepreneurship

Entrepreneurship

business

Business

startup

Startups

You have a great product that customers are clamoring for. The business plan looks fantastic. Now you just need funding to get the product to market.

You begin pitching to angels and VCs but aren’t getting any bites. Why isn’t anyone interested?

The business plan shows you reaching $20M in revenues in 7 years. You want to raise $2M now on a $10M valuation.

The business will generate $5M a year in profits, you predict. Isn’t this a fantastic opportunity?

If the startup does generate $5M in profits annually, regular accounting math says it’s a great business for the founders. But venture math shows why it’s a poor opportunity for venture investors.

Venture investors (VCs and angels) invest in startups based on the following fundamental assumptions.

Investments can’t be monetized until the startup exits

Unlike investments in public companies, real estate, crypto, artwork, race horses, or just about anything else, investments in startups can’t be sold or traded until either (1) the startup is acquired, or (2) the startup completes an IPO making the stock publicly tradable. Until that exit, which won’t come for many years, my investment is nothing but a line on your cap table.

Money is collected at the beginning of the fund, investments are made over the first 3 years, and at the end of 10 years, the fund is shut down. Startups therefore need to be able to exit within 5–7 years of investment. Angels have more flexibility, but we’d like to see a cash return on our investment sometime before we die.

The author made this story available to Medium members only. If you’re new to Medium, create a new account to read this story on us.

Understanding Venture Math

Key Point

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