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Respect the Stick Re: Venture-Backed High-Impact Startup Investments

The hockey stick, that is.

High-impact entrepreneurs know, or learn pretty fast, that most angel and even most venture funds outside of the major venture centers take a perverse satisfaction in telling entrepreneurs that they are being naïve when they build the proverbial “hockey stick” growth assumption into their business plans. A lot of self-identified “smart” high-impact investors (particularly those of limited means) can be downright smug in their “you are not another one of those crazy kids carrying a hockey stick” comments as they flip through your pitch deck. “That kind of growth almost never happens.”

Well, I am here to tell you that the right response to those kinds of remarks, assuming you really have a venture capital worthy deal, is something like this: “Of course we are. We wouldn’t be here if we weren’t.”

It is indeed true that most venture-backed high-impact startups either never get to the inflection point of the hockey stick growth curve, or if they get that far, fall off the curve shortly thereafter. That says very little more than most venture-backed high-impact startup investments don’t come close to delivering the 10x returns which their venture backers were hoping for when they put their money down. If you focus instead on the deals that do deliver on their home run promise, you will find that most of those did, at some point, reach the inflection point and subsequently crawl pretty far up the growth curve.

The truth is, if you can’t convince a potential investor that there is hockey stick growth out there somewhere for you, how can you possibly show them a path for a 10x return on their investment? I suppose it might be possible in some cases to do that if you set the pre-money valuation low enough, but if you do that you are probably leaving nothing but crumbs on the table for you and your team.

No, if you want to raise real money from real venture investors for your startup, you are going to have to project hockey stick growth on some metric (revenue is the obvious one, but things like eyeballs can work in some markets) in your plan/pitch. An investor who thinks you are too optimistic about when you get to the inflection point on the curve may have a point. And so might an investor be right is saying that your deal will never get to that inflection point. But an investor who thinks hockey sticks just don’t happen, well that investor just doesn’t understand their own business. Which is reason enough to look elsewhere for capital. Focus on investors who respect the stick.

©2020 MICHAEL BEST & FRIEDRICH LLPNational Law Review, Volume IV, Number 23


About this Author

Paul Jones, Michael Best, technology lawyer, life sciences attorney,
Of Counsel

Paul draws on his extensive business experience as a successful serial venture capital-backed entrepreneur, investor, and angel investor to represent emerging technology and life sciences companies, and venture capital firms in financing and other strategic transactions and general corporate matters. His focus includes:

  • Venture capital financing

  • Startup business and financial planning

  • Strategic business development planning and execution

  • ...