Thread.🧵

Understanding startups (or scaling startups), metrics & valuations
or
how not to be misled by analog metrics when you run digital scalable ventures.

1st a key clarification: there are many kinds of startups - at one extreme, think of a SaaS venture aimed at getting 1m+ developers to swipe their cards, aiming to be a $1b rev biz in 5+ yrs; at other a local restaurant or a pet salon with no rev goals. In middle varying combos.

VCs invest exclusively in the 1st kind of startups - businesses that grow big very fast (or scale) - typically tech or tech-led (incl software, hardware, biotech) ventures. Tech allows you to serve or acquire next customer at low to zero cost. This is an important criterion.

Businesses that scale (technical definition - rev grows without cost increasing linearly) become very valuable & generate disproportionate return. Hence, a VC fund can invest in 20-25 such scalable startups, & 1 hit can pay for the remaining failures.

VC is thus a protocol for discovering scale. Over time, led by Silicon Valley, but now increasingly by Berlin / Beijing / Guangzhou / Bangalore, a set of rules & playbooks have emerged to help a startup scale.