The most important piece in this writing is:
“A couple days later I was talking to the founder of a startup I'd funded. I began by asking, as I usually do when I meet a founder, what her growth rate was. 93% last month, she said. I pointed out that this meant her net worth was also growing at 93% a month. She was getting richer at a stupendously rapid rate. And yet she hadn't been doing anything bad. The reason her startup was growing so fast was simply that users loved what she'd built. So she could feel from her own experience how wrong that politician was. She wasn't exploiting anyone. Exactly the opposite in fact. The reason her startup was growing so fast was that she and her cofounder had been working their asses off to make their users happy, and as a result the users had been telling their friends. And that gets you exponential growth.
Later that day I was talking about her case online, and someone replied that having a few million and growing at 93% a month was radically different from being a billionaire.
I suspect many people would agree with this statement. But it turns out not merely to be false, but false in a very illuminating way.
So I would like you all to do me a favor please. I would like you to take out your phones and calculate a number. I know this may seem contrived, but I promise it will be useful for you. I'm going to have you do the most common kind of calculation I do as an investor, and the experience will bring home to you what startups are all about.
If we interpret his statement in the most conservative way and assume that a few means 2, her company has to grow 500x for her to become a billionaire. So we are going to calculate how many months of 93% growth it takes for something to grow 500x.
To do this we want to calculate the log base 1.93 of 500. The easiest way to do that is to go to Google search, which lets you do calculations right in the search box. So go to Google search and type log(500, 1.93). If you typed that right, the answer you get is about 9.45.
That is how many months of 93% growth it takes to become a billionaire, starting from 2 million. A couple million and 93% growth are not, in fact, radically different from a billion. They're nine and a half months apart.
Now you see why, when I meet a founder, the first thing I ask about is their growth rate.
But I don't want anyone to accuse me of using unrealistic numbers, so let's take a more conservative growth rate. Let's see what happens at 15% a month. That's not rare at all. I constantly encounter startups growing at 15% a month.
If your revenues grow at 15% a month, how much more will you be making 5 years from now? To calculate that, we need to find 1.15 to the 60th power (since 5 years is 60 months). So go to Google again and this time type 1.15^60. The answer should be about 4384. Meaning in 5 years your startup will be making 4384 times as much. If you're currently making ten thousand a month, in five years you'll be making about 44 million a month, or 526 million a year. And at that point, if you own as much of the company as founders typically do, you will be a billionaire.”