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If the founder can get the 90K cost constant and keep the rev growing at 9% per month, there is only a $10K shortage by month 7 (and cash runs out in month 6 on

If the founder can get the 90K cost constant and keep the rev growing at 9% per month, there is only a $10K shortage by month 7 (and cash runs out in month 6 only). This can easily be solved with some annual prepayments. Source: https://docs.google.com/spreadsheets/d/1RSHx9pwrSKfOlUr2jyqKvaJiF4BgYfO-rvh0btojRkg/edit?usp=sharing https://docs.google.com/spreadsheets/d/1RSHx9pwrSKfOlUr2jyqK...

nodesocket 12y ago
Cool spreadsheet. This will come in handy later in life. Thanks.
blazespin 12y ago
Mo money mo problems, unfortunately. Hard to keep that overhead constant.
- peterjancelis 12y ago
  Yes this also assumes the 9% growth is word of mouth and not ad spend driven.
  - gideon_b 12y ago
    Assuming half the costs are fixed (office, salaries, etc) and half the costs grow with revenue (Sales, Marketing, Servers etc.) than the situation becomes a little more bleak: https://docs.google.com/spreadsheets/d/1YoPnpFzmcpdZQh6HZ_2fbJDqOgSqrNVZuLkt0g0wKnA/edit?usp=sharing https://docs.google.com/spreadsheets/d/1YoPnpFzmcpdZQh6HZ_2f... EDIT: they would hit breakeven at 22 months - not bad actually.
limejuice 12y ago
Yea, I was running the numbers in my head as I read the article, and thinking this company is not in that bad a predicament. They look to be very close to turning the corner. Without knowing more about the business, it's hard to say if 9% month/month growth is bad or not. Some of these Saas business start out slow and then they take off once they get some critical mass.
nlh 12y ago
Funny - you did exactly the same thing I did while reading the article - our spreadsheets are basically identical :) So here's my thoughts -- I think some outside "real world" perspective is needed here. While 9% M-M growth may seem OK in the VC-fueled hockeystick growth world, in the real world of profitable businesses it's spectacular. Some companies spend years running losses trying to get to profitability, and if that 9% is real (and sustainable), then I can think of only two things going on here: A) Either the whole world has gone crazy or B) More likely - there's missing information here. As peter points out -- at a 9% growth rate the business turns profitable after 6 months and on the 13th month is net profitable. Any rational investor would be frothing to get involved in that sort of business - it becomes a money-printing machine in short order. So I'm assuming that there's missing information here -- either the 9% monthly growth isn't sustainable (then it's not a true 9% M-M growth rate) or the costs must rise substantially to sustain it. And if that's the case, then you can start to see the real reason VCs might be hesitating. So I guess my point is: Don't obsess over the raw growth number as the sole problem. That sets the wrong target. In the end, profits drive businesses, and massively profitable businesses can go public (and get great valuations), and public companies make VCs happy.
- lpolovets 12y ago
  > A 9% growth rate the business turns profitable after 6 months and on the 13th month is net profitable. Any rational investor would be frothing to get involved in that sort of business - it becomes a money-printing machine in short order. That's not 100% true. 1) Growth rates like this are not sustainable long-term, and a 9% growth rate doesn't look great when lots of other companies are at 15-25% monthly growth with similar revenues. 2) The revenues multiples for Series A startup are very high. Would I invest in a $600k revenue/year startup growing 9% monthly at a $4m valuation? Sure, that sounds good. But a Series A would be more like investing $5m at a $25m valuation, which is way higher than the startup is worth based on pure fundamentals. The reason to invest at a $25m valuation is because you think there's a 10% shot the startup will be worth $500m, not because you think it's a 100% shot at $25m. High growth rates are one of the best indicators that a startup has a shot at $500m. (My fund does seed/Series A investments.)
debacle 12y ago
And if they can tighten burn just a little bit, they don't go off the runway. I don't really understand this blog post.
- pc86 12y ago
  I don’t think it (the blog post) is strictly about the revenue. As others have stated, if they can sustain 9% MOM (not trivial beyond the very short term) and keep that $90k cost constant, they will be profitable shortly after going off runway. Even with a 1-2% MOM cost growth they still reach net profitability by the end of the year. I think the blog post is particularly focused on Series A Silicon Valley VC firms. With as easy as it is to get Seed funding at the moment (in SV and with decent connections, anyway), they’ve got multiple companies with – to quote another poster here – 15-25% MOM growth at similar levels of revenue. They’re not looking for the thing that will be making $25k/mo in profit a year from now. They’re looking for the thing that will be sold for millions of dollars. I think this company would be a great investment for somebody who wants to put $100k+ into a long-term, strategic venture. It is probably a pretty bad deal for most VC firms, though.
deleted 12y ago
[deleted]
danielsiders 12y ago
and/or short-term salary reductions (especially for founders)

nodesocket 12y ago

Cool spreadsheet. This will come in handy later in life. Thanks.

blazespin 12y ago

Mo money mo problems, unfortunately. Hard to keep that overhead constant.

peterjancelis 12y ago
Yes this also assumes the 9% growth is word of mouth and not ad spend driven.
- gideon_b 12y ago
  Assuming half the costs are fixed (office, salaries, etc) and half the costs grow with revenue (Sales, Marketing, Servers etc.) than the situation becomes a little more bleak: https://docs.google.com/spreadsheets/d/1YoPnpFzmcpdZQh6HZ_2fbJDqOgSqrNVZuLkt0g0wKnA/edit?usp=sharing https://docs.google.com/spreadsheets/d/1YoPnpFzmcpdZQh6HZ_2f... EDIT: they would hit breakeven at 22 months - not bad actually.

limejuice 12y ago

Yea, I was running the numbers in my head as I read the article, and thinking this company is not in that bad a predicament. They look to be very close to turning the corner. Without knowing more about the business, it's hard to say if 9% month/month growth is bad or not. Some of these Saas business start out slow and then they take off once they get some critical mass.

nlh 12y ago

Funny - you did exactly the same thing I did while reading the article - our spreadsheets are basically identical :) So here's my thoughts -- I think some outside "real world" perspective is needed here. While 9% M-M growth may seem OK in the VC-fueled hockeystick growth world, in the real world of profitable businesses it's spectacular. Some companies spend years running losses trying to get to profitability, and if that 9% is real (and sustainable), then I can think of only two things going on here: A) Either the whole world has gone crazy or B) More likely - there's missing information here. As peter points out -- at a 9% growth rate the business turns profitable after 6 months and on the 13th month is net profitable. Any rational investor would be frothing to get involved in that sort of business - it becomes a money-printing machine in short order. So I'm assuming that there's missing information here -- either the 9% monthly growth isn't sustainable (then it's not a true 9% M-M growth rate) or the costs must rise substantially to sustain it. And if that's the case, then you can start to see the real reason VCs might be hesitating. So I guess my point is: Don't obsess over the raw growth number as the sole problem. That sets the wrong target. In the end, profits drive businesses, and massively profitable businesses can go public (and get great valuations), and public companies make VCs happy.

lpolovets 12y ago
> A 9% growth rate the business turns profitable after 6 months and on the 13th month is net profitable. Any rational investor would be frothing to get involved in that sort of business - it becomes a money-printing machine in short order. That's not 100% true. 1) Growth rates like this are not sustainable long-term, and a 9% growth rate doesn't look great when lots of other companies are at 15-25% monthly growth with similar revenues. 2) The revenues multiples for Series A startup are very high. Would I invest in a $600k revenue/year startup growing 9% monthly at a $4m valuation? Sure, that sounds good. But a Series A would be more like investing $5m at a $25m valuation, which is way higher than the startup is worth based on pure fundamentals. The reason to invest at a $25m valuation is because you think there's a 10% shot the startup will be worth $500m, not because you think it's a 100% shot at $25m. High growth rates are one of the best indicators that a startup has a shot at $500m. (My fund does seed/Series A investments.)

debacle 12y ago

And if they can tighten burn just a little bit, they don't go off the runway. I don't really understand this blog post.

pc86 12y ago
I don’t think it (the blog post) is strictly about the revenue. As others have stated, if they can sustain 9% MOM (not trivial beyond the very short term) and keep that $90k cost constant, they will be profitable shortly after going off runway. Even with a 1-2% MOM cost growth they still reach net profitability by the end of the year. I think the blog post is particularly focused on Series A Silicon Valley VC firms. With as easy as it is to get Seed funding at the moment (in SV and with decent connections, anyway), they’ve got multiple companies with – to quote another poster here – 15-25% MOM growth at similar levels of revenue. They’re not looking for the thing that will be making $25k/mo in profit a year from now. They’re looking for the thing that will be sold for millions of dollars. I think this company would be a great investment for somebody who wants to put $100k+ into a long-term, strategic venture. It is probably a pretty bad deal for most VC firms, though.

deleted 12y ago

[deleted]

danielsiders 12y ago

and/or short-term salary reductions (especially for founders)