Here is my investment thesis. What’s yours?

Martin Mignot
Sep 26, 2014 · 5 min read

1. Can it generate large enough revenues?

(for eg. at UBS we would not work on any transaction lower than $500m — at 10x current revenue multiple, this implies a $50m net revenue business as a minimum)

2. How quickly can it grow to reach this minimum revenue scale, and beyond?

It is (relatively) easy to grow fast for the first few years of the life of a startup, but maintaining that growth past $10m and then past $100m is a whole different game. The company will need to keep acquiring an ever greater number of users to overcome the natural churn of their growing user base, in order to maintain not only absolute growth, but also relative growth. The public markets only tolerate the risk of tech startups because they offer unparalleled growth rates.

The larger the user base, the faster the growth

3. How profitable can it be?

In the early days, “traction” is all that matters, whatever metric is being used to define it. But in the long run, Monthly Active Users (MAU) and other “activity” metrics, do not appear anywhere in a DCF model: net profit is the only number that counts.

4. How predictable are these profits in the long run?

This is the final piece of the investment puzzle: the defensibility of the business. The “moat” that investors and entrepreneurs are so obsessed about building around their activity. This concept has a financial translation too: the Weighted Average Cost of Capital (WACC), ie. the factor future profits get discounted by to value the business. The riskier the business is perceived, the higher its cost of debt and equity, and the lower the present value of its future profits.


In the long run, these are the only four questions that matter to determine the potential of a business and whether it will be able to reach the “unicorn club”: how large can the revenues be? How fast can they grow? What costs will be needed to support them? How predictable are they going to be five/ten years from now? Obviously, the earlier the investment, the less precise these answers will be, but, whatever the stage, these questions remain valid.


Here is a “quick and dirty” DCF model built using the Soulver app, which shows a back-of-the-envelope calculation of what is required to reach a $1bn valuation using this method.

    Martin Mignot

    Written by

    Partner @indexventures. Looking to connect with great entrepreneurs.

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