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Dozens of pitches come across my desk every single day from entrepreneurs seeking funding for their companies. I’m a serial successful entrepreneur turned angel investor and venture capitalist. I am also one of the top female seed-stage investors in the world. These pitches come through our company site, email, and LinkedIn. However, many entrepreneurs seek advice rather than funding. Having once struggled to raise capital myself, I am sympathetic to their pleas for help.
One such entrepreneur is Emma. Her passion for her stationery business was undeniable. After years of perfecting her craft, she had a small but fiercely loyal following of customers who adored her exquisite, custom-made stationery. She sought venture capital funding to take her business to the next level after reaching a plateau.
Unfortunately, her fundraising efforts were a complete disaster. Investor after investor turned her down. Discouraged, she asked for my assistance.
After reviewing her pitch deck, I immediately saw the problem. She had a good vision but did not understand what investors look for. Her deck and pitch overlooked four key numbers – I call them BFHL – that are most fundamental to scale.
B. Big market numbers
The foundation of any scalable business is the market it serves. For investors, the bigger the better. To understand why, it’s essential to understand VC math.
Assume my fund invests in 15 companies. Ten of them will fail, and I’ll lose my money. Three or four will do okay – I’ll get my money back or make a bit (1 to 5 times my money). That means the remaining one or two companies need to generate enough returns to make up for everything else (i.e., 100 times my money). Otherwise, my fund won’t do better than other far less risky things my investors could have put their money into.
VCs look at every company through this homerun lens. What is the maximum revenue your business could generate if it captured 100% of the available market (Total Addressable Market, or TAM)? While no business can realistically achieve that, TAM provides a sense of the market’s overall size.
For some industries, a market size in the billions of dollars might be considered large. In others, it could be in the trillions. Either way, a substantial market size offers massive potential for growth and a high ceiling for revenue and profitability.
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F. Fast growth rate
The market’s growth rate is also vital. VCs favor rapidly expanding markets because they enable a company to scale more quickly.
Again, let’s turn to VC math to understand why rapid growth is crucial. Remember, VCs back the most risky companies (startups are unproven;