Revenue is a drug..
I have heard a number of times how venture capital is a drug, it is addictive to some entreprenuers, and of course never confuse raising venture money with success.
Today I heard another good one. Revenue can be a drug. Now this was not from some crazy web entreprenuer. This was from a well known enterprise CEO with Intel,Adaptec, Cadence and Documentum on his resume.
- don’t confused getting some short term revenue with a business and don’t let it distract you from the business you are building
- don’t get addicted to it so that you trade off your other business metrics to grow your business because of “revenue”
- it can chase your off your strategy…
Now this is one that really hits me from my earlier experience. It is especically true from businesses built on networks. If it is a network business, grow the network.
Now having said this 2M of revenue that generates 2M of incremental cash in a series A company may be worth $200M of equity over the life of your company. Why ? This is the old point Mattucci at USVP makes when he talks about the $500 coke. A can of coke cost 50 cents. Series A venture guys want a 1000 times return,if you buy a coke with series A money you are spending money $500 on a coke. (I know all the reasons why people say this is BS but on some level it is right)
So $2M of revenue early might be worth $200MM or $2B. This is actually partially true. The early revenue at facebook from a few sponsorships lead to them not taking venture until late. This is going to be worth an extra $2B for the founders. It also meant less vc meddling early…with is worth about $15B when you consider the difference in value between friendster and facebook.
Now about finding $2M of revenue that is 100% profit with no sales cost…hmmm.. I need to think about that.