Epic Fail in Fundraising – Financial Assumptions Part 2 – Overblown Growth

Epic Fail in Fundraising – Financial Assumptions Part 2 – Overblown Growth

Benchmark data for financial models

I wrote an earlier post of this topic here that covers common errors like starting at zero revenue and growing to a billion dollars in sales in year four or not knowing your key metrics for your business model.

I wanted to add a part II to the post and provide some benchmark data that you can use to compare your revenue growth and model with some real life data from fast growth companies.

So what are the fastest growing companies? Inc Magazine does an annual list of the fastest growing 500 companies and include the fastest 5000 companies. The detailed criteria for 2012 is listed here, but the  first year revenue number has to be a minimum of $100k and a minimum of $2M in year three.

I’ve also added the Groupon four-year revenue growth numbers. Groupon was one of the fastest companies in US to get to $1B in revenue and a $1B valuation, so that’s a good note of the top end of sales growth. Groupon numbers start in 2008 to 2011. I’ve listed them as year 1 – 4 so that we can compare the other Inc 500 list companies.

Year Year 1 Year 2 Year 3 Year 4
Groupon Revenues $    5,000  $14,540,000  $312,941,000  $1,624,741,000
Inc500 2012 – 1  $250,000  $ 59,500,000
Inc500 2012 – 2  $113,660  $ 26,900,000
Inc500 2011 – 1  $189,510  $ 77,700,000
Inc500 2011 – 2  $185,000  $ 38,000,000
Inc500 2010 – 1  $158,500  $ 38,000,000
Inc500 2010 – 2  $ 90,169  $ 32,500,000
Inc500 2009 – 1  $476,898  $ 95,000,000
Inc500 2009 – 2  $351,000  $ 47,400,000

What does this mean for you?

  • If your revenue starts at zero – that means you haven’t figured out your key metrics for your startup – yet. At that point you have a hypothesis about the revenue drivers.
    • The first $100,000 is likely more difficult to prove than scaling that revenue
      • Product price
      • Cost and method of customer acquisition
      • Average Revenue per User (ARPU)
      • Time to close
    • Service revenue doesn’t count for your real forecast – e.g. you are delivering consulting services until you get your product launched. Revenue is great (and important) but don’t use that as validation that customers will pay for your product. If you have it, break it out separately in the forecast
  • If you’re not starting at zero, then the question is how do you scale that revenue?

Don’t get me wrong, I’d like you to be #1 on the Inc 500 list. However, I don’t want you to look like a rookie when you tell investors that you will be growing faster than Groupon when you haven’t proven the basics of your model yet.

2 Replies to “Epic Fail in Fundraising – Financial Assumptions Part 2 – Overblown Growth”

  1. Dave, part of what I like about this is you’re using the numbers to set a near term challenge that seems both doable and insists on accountability. I am going to share this post right away with two entrepreneurs.

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