Your startup idea probably isn’t venture-scale
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What do Product Hunt, Trello, Balsamiq, Basecamp, Things, DuckDuckGo, Brain.fm, and many of your favorite products have in common? They’re beloved, have millions of users, and likely generate tens of millions of dollars a year, but, like your idea and 99.9% of new startup ideas, they will never be “venture-scale.” And that’s OK. You can build a killer business without going the VC route. And you probably should. A simple rule of thumb for what makes an idea venture-scale is having a path to $100 million a year in revenue and hitting $1 billion+ valuation, in 10 years. Essentially, can you get big, fast? This is what VCs need to invest in in order to make their fund economics work. Very few ideas can hit this scale, and it’s important that you recognize this before you take venture capital (more on this below). To gauge the venture-scaliness of an idea, investors look for:
A high bar indeed. Making something people want is not enoughYou often hear about the importance of making something people want, but that’s just step one. If not enough people want what you’ve built, or you can’t make enough money from these people, you won’t be able to build a venture-scale business. But, again, that’s OK. You can still build a great business. Here are some ideas that will (probably) never be venture-scale businesses but can still be great revenue-generating businesses (and many already are):
If you’re excited about one of these ideas, by all means build it! We need more great products in the world. The mistake is thinking your startup idea is venture-scale and getting on the VC treadmill. Once you’re on the treadmill, here’s what changes:
If you’re already down this road and are realizing your idea isn’t venture-scale, don’t worry. As long as you tried your best (and are working with good investors), they won’t hold it against you. As Leo Polovets, GP at Susa Ventures, shared with me:
How to tell if your idea is venture-scaleIf you’re now wondering whether you have a venture-scale business, ask yourself three questions: 1. Is my market big enough? Do the math. What would have to be true for your business to reach $100M in revenue in one year? How many people would need to be using it (and/or paying for it), and how much should you need to make per user? As Nina Achadjian, GP at Index Ventures, says, it very simply often comes down to market size:
Also, a classic piece of advice from Andy Rachleff (co-founder of Benchmark Capital):
Note, this is in large part a guessing game, but knowing what needs to be true to reach this bar is illuminating. Here’s a simple guide to help you think this through. 2. How much pain are you solving? On a scale of 1 to 10, how painful is the status quo? Is it a 9-10, or is it 4-5? It’ll be hard to get people to pay a lot of money, or to switch from a good-enough product, if there isn’t a lot of pain. Here’s how Hunter Walk, GP at Homebrew, thinks about what makes a venture-scale business:
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