Napkin Math 📐

November 21, 2024

Hi friends,

When I first started investing, I thought evaluating startups meant poring over complex financial models and 50-page pitch decks. But after a decade in venture capital, I've learned that some of the best investment decisions come down to simple arithmetic sketched on the back of a napkin.

About eight years ago, I met with the founders of Squire. Their pitch was straightforward – they wanted to build a platform to help people find and book barbers. No fancy tech stack, no groundbreaking AI, just a simple solution to an everyday problem.

Before diving into their detailed pitch deck, I pulled out a napkin and did some quick math:

  • How many adult men in America aren't bald?

  • Would they pay a dollar to make booking easier?

  • How often does the average guy get a haircut?

The numbers were compelling:

  • ~150 million potential male customers

  • $1 per booking

  • Average of 6 haircuts per year

That quick calculation revealed a potential billion-dollar revenue opportunity… and that wasn’t even accounting for additional revenue streams like payment processing, sponsorships, or premium features. The core business alone was big enough to be meaningful.

When I meet founders today, I look for three key elements in their "napkin math":

  1. Target Market Precision

Don't tell me "we're targeting the $100B beauty industry." Show me exactly who your customer is and how many of them exist. Break it down to its simplest form. If you're building a product for dog owners, show me how many people own dogs in your target market, what percentage of them match your customer profile, and what they currently spend on similar solutions.

  1. Price Point Reality

I want to see pricing based on real market signals. What are people actually paying for similar solutions today? What's the cost of the problem you're solving? The best founders can articulate why their price point makes sense from the customer's perspective.

  1. Customer Acquisition Path

Show me how you'll get from zero to your first 10,000 customers. Break it down month by month. If you tell me you'll get there through "viral growth" or "word of mouth," I want to see the underlying assumptions. What's your viral coefficient? What's your customer acquisition cost?

The beauty of napkin math is that it strips away the complexity and forces you to focus on what matters. If your business doesn't make sense on a napkin, it probably won't make sense in a complex spreadsheet, either.

Until next time,

Jesse

“The Experimentation Machine”

I'm thrilled to share that my partner Jeff Bussgang's new book "The Experimentation Machine" is now available for pre-order.

At Flybridge, we've seen firsthand how AI is changing the way companies are built. The strategies that worked even a few years ago are becoming outdated. But there hasn't been a clear guide for navigating this shift… until now.

Jeff has written the book I wish existed when I was started investing. Drawing from his experience as a founder, investor, and Harvard Business School professor, he shows founders how to:

• Test ideas faster and smarter • Learn what customers actually want • Build efficient teams • Make better decisions with limited resources

Reid Hoffman and Eric Ries have already praised it as essential reading for founders. I couldn't agree more.

Pre-order now with code FLYBRIDGE20 for 20% off.

Congrats Jeff!

📰 I recently shared my POV on LLMs & SLMs with Pitchbook. Check out the full article here.

😻 Congrats to General Collaboration for being named #1 Product of the Week on Product Hunt.

💰 Next Wave NYC is backed by Flybridge and deploying pre-seed capital into the next generation of iconic companies. Contact us.

👋 Hi, I’m Jesse, a seed-stage VC at Flybridge. If you’re building or investing in an AI-driven future, reply to this email with a short message. If you’re local to NYC, I’d love to catch up over coffee.