Here’s how founders are projecting their startup’s growth rate

Here’s how founders are projecting their startup’s growth rate

Creating and presenting revenue forecasts to investors is always tricky for startup founders. Forecast too high, and they won’t believe you, forecast too conservatively, and they may lose interest.

To get a sense of how the average startup is assessing its growth potential, my company, Equidam, has collected financial projections for more than 15,000 early-stage ventures across 78 countries. We looked at the latest year of financials plus the next three years of forecasted revenues.

What we found is that, on average, founders are forecasting 120 percent revenue growth for their first year, 83 percent for the second, and 60 percent for the third.

So a company that grossed $500,000 year-to-date (YTD) will forecast $1,100,000 for next year, 2,013,000 for the following one, and $3,220,800 for the third one.

Growth rate projections, however, vary widely by industry, country, and stage of development of the venture. Companies that start from scratch will, of course, find it easier to grow their revenues at higher percentage rates since a small number is easier to double than a large one.

On top of that, different sectors have different setup times, adoption speeds, sales cycles, and market opportunities. Finally, countries have different home-market sizes, access to funding, and talent etc.

To benchmark the companies against the size factor, we divided them into three classes of YTD revenues: $1k to $50k in starting annual revenues make up the “small” group, $50k to $250k the “medium,” and above $250k the “large.”

Not surprisingly, US “small” companies are the most ambitious, forecasting 740 percent growth in their first year.

They do, however, align with other countries for the following years, growing more conservative as they grow larger.

The medium and large groups tell a different story. Once the company is slightly more established, the ambition mostly comes form India and Israel, which outproject their American counterparts.

The sector with the highest growth expectations is …

And what about the different sectors?

Well, the sector that projects the highest growth rates is financial services, with a 308 percent average growth projection for the first year, 143 percent for the second, and 86 percent for the third.

If you look only at the small class, financial services startups project a whopping 900 percent during the first year.

Click link to read more... CLICK