Ask HN: How to predict 3-year revenue and growth for an early-stage "search" company? | Hacker News Reader

Ask HN: How to predict 3-year revenue and growth for an early-stage "search" company?

3 pointsbravura9 comments

Our startup is pre-funding, and still in the prototype phase. We have not deployed. A potential investor has asked us---among other questions---for a 3-year revenue and growth forecast. Obviously, this is educated guessing, but I would like to ballpark it by comparing to similar successful ventures. Could anyone suggest points of comparison and other techniques for predicting 3-year revenue and growth?

To situate what we are doing: We are developing an information finding tool that complements search. Every place on the internet that currently has a search box, could also have our tool in addition (not as a replacement). Our tool has that sexiness factor that could lead to viral adoption. Besides having a standalone site, we are also targetting enterprise, and writing an API and plugins for blogging+CMS platforms, Facebook, and iGoogle.

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Is this investor at all experienced in funding technology startups? There is such a wide variation that there is no such thing as "similar". At year 3 Google was $50 million in the hole with no revenue in sight.

The question is silly, but it's not useless. Think about how much you will charge for this thing, or how much traffic, etc. Make up a good per-unit revenue and multiply. Save it so that in 6 months (let alone 3 years) you can pull it out and laugh.

This investor, a friend of mine, represents non-tech savvy high-net-worth individuals. Mainly financiers. (My advisors recommended I not shop for tech-savvy investors until my product is more mature.)

How can I estimate traffic?

Do you absolutely need his money to launch?

I am not sure what your question is.

Is there a problem with his money specifically?

Unfortunately, I do need money to launch and achieve profitability. Search is funny like that. Rich Skrenta, founder of the Blekko search engine, made a big deal out of needing only $5M: “you don’t need a million servers and half of the phd’s in the field to build a search app. It takes 20 people and $5M of hardware…if you know what you’re doing.”

$5M might be excessive for my tool, but $0 just won't cut it.

You can't, not accurately. Everyone gets this wrong regardless of whether the business succeeds or fails.

From your post it sounds like webmasters with "search boxes" are the ones who install this. So first estimate how many of these there are and what their traffic is. Then make up a nice-sounding rate for market share growth and plot it.

That's really as far as anyone can tell you. You are the one with the most information. That process is useful because it forces you to really think about how your cool tech will actually operate in the real world.

Why did your advisors tell you to go after dumb money first? What was their reasoning? There is a problem with "dumb" money -- it's not as useful as "smart" money. They can't do anything else to help you (contacts, expertise, advice) except write a check.

Hand-waving and wishful thinking.

At least, that's the method I've seen most folks use, and it seems to tacitly accepted by the VCs that believe in what you're doing. There are all sorts of weird human foibles that make us poorly suited for dealing with large numbers, probabilities, and rate of change as it applies to money. Engineers turned VC might be more skeptical, but I wouldn't bet on it. Of course, the best VCs have highly attuned BS detectors...so, you might not be in great shape if you don't believe it yourself.

Traffic estimates would be a good start. How can I estimate traffic?

Find something in a similar field and look at theirs?

YouNoodle.com? For all it's failings and dubious accuracy, it's basically exactly what you're asking about.

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