ReTest sells subscriptions to its software testing tool to DevTesters and managers for €15 per subscription per month (€150 per year).
Assume that ReTest sold a 20% equity stake to HTGF.
Then ReTest is valued at €600K / 20% = €3M post-money.
How many subscriptions must ReTest invoice each month for its €3M valuation?
HTGF labels this investment as a seed round.
Assume that HTGF want to make 10x on its winners.
And that they need 2x to compensate for dilution.
Then HTGF wants to make 10 * 2 = 20x on its investment.
And ReTest needs a €3M * 20 = €60M exit value for its €3M valuation.
Assume that ReTest trades at 4x trailing 12 months revenue at exit.
And that there is no cash and debt at exit.
Then ReTest needs an average of €60M / 4 / 12 = €1.3M in monthly revenue at exit for its €3M valuation.
ReTest charges DevTesters and managers €15 per subscription per month.
Then ReTest must invoice an average of €1.3M / €15 = 83,333 subscriptions per month at exit for its €3M valuation.
Make a copy of the spreadsheet used for this post (File > Make a Copy…), put in your assumptions and draw your own conclusions.
Originally published at venturevalue.com on March 27, 2019.