# Passing the Smell Test

When I listen to a pitch from a startup the first thing I try to do is determine “Does what I’m hearing add up?”

If you provide numbers in your presentation I’ll do back of the envelope calculations to make sure they make sense. If they don’t, the rest of your pitch is irrelevant because it’s built on an unstable foundation.

Examples of claims I’ve heard recently that don’t pass the smell test:

“We have a deal with the government of <country x> for 30,000 units at \$20,000 each. If we do well there is the option to sell them a total of 500,000 planned units.”

There is no way a company with no prototype has anything close to a signed contract for \$600 million. The contract for the “full 500,000 units” would account for 33% of this country’s GDP. It just doesn’t add up.

“When our free app gets to 10 million users we will be making \$1 billion/year in revenue from <ads through Company Y>.”

A quick Google search shows “Company Y” just raised a \$12 million Series C. Let’s make some conservative assumptions and say they only take 30% of the revenue for themselves and only sold 10% of their company in their most recent round. Let’s also make the conservative estimate that they got only a 1x revenue multiple for the valuation of their raise meaning the upper bound for their revenue is \$120 million.

Your estimates would mean their revenue from your company would be more than 3x the revenue from all of their other publishers combined. This is just not going to happen. And that’s before even looking at the insane LTV being projected for a free app.

“We are hiring 3 sales people and will have 10,000 businesses signed up by this time next year.”

That means each sales person has to close 9 deals every day including weekends and holidays. Judging by the founders’ sales history to date… Not happening.

In your pitches it’s important provide a compelling story and sell the vision. But if you’re going to make bold claims be ready to back them up. Otherwise your audience will think you are either naïve or trying to pull one over on them.