2, 6, 18 – the Magic Numbers in a startup’s business plan

October 4, 2009 at 7:23 am Leave a comment

After we’ve screened hundreds of business plans and after we’ve discussed countless cases I would like to share some interesting as well as astonishing key findings of one of my partners Berthold von Freyberg.

There are Magic Numbers in the business plans of startups, numbers that are chasing us, numbers that are always there. Sometimes we are waiting or even expecting to run into these numbers when we are reading a business plan. When a management team is presenting the business case we are getting thrilled if they come up with these numbers.

After Berthold recognized these patterns and told us about it I checked my own old business plans and I amazingly found some of these numbers.

  • Are these numbers a sign for successful startups or just an accidentally calculated pattern?
  • Should every startup have these numbers in their business plan?
  • Are these numbers important for a VC?
  • And most importantly are these numbers stable?

Ok – enough with the foreplay! Here is the pattern of the Magic Numbers. This pattern is not scientifically generated; it’s just based on experience.

  • 2 million (EUR) investment is needed in the A-round
  • 6 months sales-cycle
  • 18 months competitive edge

2 million (EUR) investment is needed in the A-round

Why is a majority of the start-ups seeking for EUR 2m in the A round? Maybe because it is common knowledge that a VC likes to invest EUR 1 – 3m in the first round. Double-check your cash requirements. If you need more – ask for more. If you need less – talk to your potential investor.

6 months sales-cycle

Whether enterprise software or clean tech technology – most often the business plan shows a sales-cycle of 3 to 9 months and the sales-pipe calculation is based on an average sales-cycle of 6 months. To be honest, I made this mistake in one of my start-ups; I took 6 months into account. At the end we were facing 9 up to 10 months and we ran into cash-flow problems. Here comes my advice: try to be honest, not only because of the potential investor. It is even more important for your financial planning. Talk to experienced sales executives in your industry and find the correct number.

18 months competitive edge

Sure – it is sometimes complicated to estimate the head start of the own company in relation to its competitors. But why is it so often 18 months. Because it is not generally understandable we will ask for the reasons. So, be prepared 😉 and try to evaluate the correct competitive edge.

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Entry filed under: Entrepeneurs, Investments, Startups, Technology, Venture Capital.

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This blog is a view from an VC investor, entrepreneur as well as from a private person. You'll find posts about Startups, Technology, Venture Capital, Entrepreneurship and about life and fun. If you enjoy and if you don't please send me your critical comments.

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