In the world of startups, growth is crucial. Since innovative and disruptive businesses are inherently risky, the potential upside has to be significant enough for the investment to be worthwhile.
A good rule of thumb is that a startup should have a realistic chance of returning the initial investment at least 100 times over. This is because one successful investment needs to offset at least nine failed projects. Moreover, investors typically only hold a minority share in the business, which gets diluted by subsequent investment rounds. Therefore, a 10% stake in the business must be valuable enough to cover losses from other projects and generate a significant return.
Hence, the market must be large enough. Use data to present a believable, albeit significant, number for the total available market and the serviceable market. Then calculate the value of your venture in the best-case scenario by using a realistic market share.
For instance, in Airbnb's original pitch deck, they aimed for 84 million booked trips from their platform out of a total of 560 million budget and online trips worldwide. This would result in yearly revenue of $2.1 billion and suggest a business value of over $20 billion. While these numbers may seem ambitious for an early-stage startup, Airbnb's best-case scenario turned out to be conservative. As of writing this, Airbnb's market cap is $88 billion, and their revenue is over $4 billion.
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