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.
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.
> 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.
Sorry, bad choice of words on my part -- I shouldn't have said "any rational investor". What I meant is "any profit-focused, long-term investor" (as opposed to a moonshot-focused VC investor). I don't mean any of those things as negatives, just descriptives.
Your first point is right (and I addressed 1 later in my comment) -- if 9% isn't sustainable long-term, then the whole picture is quite different and a different metric should be used. And your second point, put differently, is "asking prices are too high", which is a fair point.
So I'd recast the original problem in a different light: "Company X is growing at 9% now, expectations are that it's unsustainable and won't be profitable for a while, and at the same time, they're asking a very high price relative to that growth & profitability rate", which explains why they're having trouble a bit more clearly.
My fundamental point is that the meme "anything less than 5% growth per week is bad" in a vacuum feels crazy by itself. With more context, it makes more sense.
I fully agree with that (and didn't read it negatively at all). The 5% meme/week is definitely surreal -- that's >10x/year growth! I'm always really impressed when I see companies with that kind of growth, especially after they've reached non-trivial revenues (e.g. $50k-$100k/mo)
My latest startup's user engagement is growing at >8x YoY, and while the revenue history is not deep enough for a good YoY, it's... let's say, within your scope of interest. Want to talk?
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.
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:
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.
Source: https://docs.google.com/spreadsheets/d/1RSHx9pwrSKfOlUr2jyqK...