You are a Player; But Understand the Game

Its very good to see founders of both profitable and growing SME companies and young startups benchmark themselves and formulate comparisons w.r.t. other companies, funded ones and some global benchmarks as they strive for more. And invariably some of these are interpretations which help them in their own journey. However, I guess there is a lot of confusion and convenient interpretations around as I discovered through my travels this past month.

Higher EBIDTA does not mean Higher Multiples

I have a higher EBIDTA than those people who got funded some months back, so can I expect a higher multiple when I look at options for my company? Valid question. But is the comparison done with a similar business model, even if the company is in the same industry. Is the stage of that company similar to yours?. and many more follow on questions to discover what to compare. Mind you, having EBIDTA is good than not having but does not entitle you to a higher multiple.

Business Model is beyond Revenue

Seemed obvious but Breakthrough business models meet unmet needs. In one of the the last cohorts at Founders Institute I had shared about the Things that you as a company do to.

a) Get a customer = lead generation + sales strategy.

b) Keep and Grow a customer — Revenue model and Product model and churn and costs of goods sold leading to Customer Lifetime Value.

c) Manage and Run this business over a period of time . And useful to link the Business model to metrics that can be followed in operations, measured and can be summarised for your investor outreach.

Growing is NOT same as Scaling. Do costs grow linearly with sales or slower than the sales due to business model, adoption etc.

Business model also needs to be investable even if you are a founder that you think everyone likes.

Recurring Revenue

I keep selling to the same customer each time he/she places a new purchase order. This is NOT Recurring revenue in the manner a VC expects what recurring means. And yes, ARR is NOT equal to my last month revenue multiplied by 12 (in all business models). If you meant annualised run rate, type more and write full form. Using terms/jargons when they are not relevant for your business model, can create confusion and disconnect in the conversations.

Traction

I always get a smile when this word is used in the room by anyone — founder, investor etc with the occasional rolling of eyes, shaking of the head etc depending on their most recent experience. As a founder can you outline and say what your business did in say 6months earlier and show that now you have graduated to doing in a quarter and will be what you will do in a month, then in weeks in some time etc.

To be able to say these and show in data is also a manner of outlining how your business model is working — may be at a smaller scale now. But take the opportunity of showing how this is likely to do in the next 12 months or so, for which you need capital no doubt. This could give a prospective investor a better perspective of what your business is likely to become and then focus on you and your teams execution ability to reach that.

Life is like a game of cards, you will never know what you will get dealt, but you can always play your hand. Communicating your business, business model and numbers with simplicity (English plus numbers and not english alone) is desirable to get an engagement from the target community and an opportunity for a conversation. The more time it takes for people to just figure out what you are doing, the less the chance for any meaningful conversations. And yes when there is a chance of discussion beyond pitching there are possibilities.

Everyone in the ecosystem is in search of such possibilities to then track.

You are a player, but always helps to better Understand the Game.

— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —
Sameer Karulkar is the Founder and Partner at Coverpage Ventures Advisory LLP. follow me at — https://www.linkedin.com/in/sameerkarulkar/ or https://twitter.com/KarulkarSameer.