The most important inputs in a VC exit model

Hi! I’m glad you’re here. You’ve made it to issue #92 of VC Demystified🪄.

My name’s Nicole - I’m a Principal at an early stage venture fund, and I know firsthand that VC can often be a black box. Breaking into the industry may feel daunting and resources can seem scarce and inaccessible. I wanted to put together a newsletter to give others the playbook I wish I had when I first started.

Today’s deep dive: A breakdown of the inputs needed in a VC exit model

^{My personal mission is to open as many doors as possible for other people and this newsletter is just one avenue to do that. As always, I will continue to post VC insights daily for free across my socials. This newsletter may contain paid partnerships or affiliate links.}

Read time: 3 minutes

A breakdown of the inputs needed in a VC exit model

A big part of a VCs job is understanding exit potential of a particular startup.

Obviously when you’re investing at the preseed or seed stage (even at the Series A), your assumptions on exit potential are just that, assumptions. And very, very lofty assuptions at that.

Despite likely being off on every assumption made at that stage, you still need to understand / evaluate the inputs of the exit model to pressure test whether a startup can reach “venture scale.”

As a quick refresher, venture scale means:

The ability to scale to $100 million in revenue in 7-10 years with little capital and a low penetration of the market. Usually reaching a $1 billion+ valuation.

So with that, a VC exit model at the early stages is not about “being right,” it’s more about having a sanity check.

To build a simple VC exit model, you essentially need to track two things:

1. How much of the company you own at exit (the funding & dilution path below)

2. What the total company is worth when it finally sells (the exit valuation below)

Here is a breakdown of the inputs for each of those elements above:

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