Average Growth Rate For Startups

Editor’s note: This post was originally published in November 2016 and has been updated with latest data for accuracy in September 2023. 

Building a startup into a sustainable business requires multiple years of commitment. But how do founders see this roadmap? When do we expect the company to be generating revenues? How steep should the proverbial hockey stick be?

Creating and presenting revenue forecasts to investors is always tricky. Too high and they will not be believed, too conservative they will lower the interest of the other party.

The lack of knowledge on how founders see the future stems out of the little data about startups financial projections. Equidam, through its valuation platform, took into account the financial projections for a sample of more than 25,000 early stage ventures across the globe. Companies providing forecasts have an intrinsic incentive in being accurate one possible, receiving a fair valuation.

Benchmarks to estimate the growth rate for startups

Forecasting revenues really comes down to a growth rate. No matter if the company starts from scratch or not, the final outcome is the growth rate and the argumentation that makes it achievable.

In our analysis, we look at the latest year of financials (YTD) plus the next three years of forecasted revenues. From these, we are able to study the annual revenue growth coefficients for the upcoming 3 years.

The average company forecasts a growth rate of 268% in revenues for their first year, 144% for the second, and 71% for the third.

This means that a company that grossed $500.000 Year to Date (YTD) will forecast roughly $1,840,600 for the next year, $4,493,400 for the following and $7663,700 for the third.

Growth rates for startups however vary widely by industry, country, and stage of development of the venture. Companies that start from scratch will of course find it easier to grow their revenues at higher percentage rates. One of the reasons for it is that a smaller number is easier to grow compared to a large one.

On top, different sectors have different setup times, adoption speed, sales cycles and market opportunities. Finally, countries have different home-market sizes, access to funding and talent etc.

To benchmark the companies against the size factor, we divided them into 2 classes of YTD revenues: companies between $50.000 and $250.000 in starting annual revenues compose the “small” group, and above $250k the “large”

In the small companies subset the country leading for projected growth is by far the United States with 481% on the first year and followed by India with 359%. European countries are in the bottom half of the pack up until year 3, at which point they jump into the lead. It’s also notable how much the variance flattens out in year three for all except Africa which remains more conservative, which may represent a different balance of industries – more on that later.

The large group tells a different story. The growth rate projected by large companies is structurally slower than the one projected by smaller companies. We can see Africa taking a lead in growth for this category in year one, and falling back into last place in year 3. 

The United States remains fairly consistent, staying in second place across all 3 years. India is fairly strong in year 1, but similarly to Africa it falls off fairly quickly and is far behind other regions by year 3.

The sector with the highest growth expectations is …

What about different sectors then?

Across all companies, the sector that projects the highest growth rates is Banking & Investment Services, with a strong 291% average growth in year 1, 172% in year 2, and 81% in year 3, while the industry projecting a slower growth is Cyclical Consumer Products, with 198% in year 1, 92% in year 2 and 40% in year 3. This is supporting the general characteristics of the two industries, with the progressive digitalization of financial services allowing for faster expansion, while products are more limited by challenges with logistics/distribution.

Among companies in the Small class, Banking & Investment Services has the leading projected growth in year 1 and 2, but falls into the bottom of the pack in year 3. The Software & IT Services industry does predictably well, moving steadily from third place up to the lead in year 3.

In general, Banking & Investment Services is the industry forecasting a higher growth in large companies as well, though again it doesn’t manage to maintain the lead in year 1. The Software & IT Services industry again forecasts fairly strong and steady growth, and despite starting in third place it finishes in the lead for year 3 with forecasted growth of 77%. Indeed, all of the industries project a relatively similar growth rate in year 3, at an average of 54%, with just Cyclical Consumer Products and Food & Beverages slipping below the 40% mark

Comparison with 2019: increased optimism

In general, the expected growth by entrepreneurs grew from 2019, most obviously in year 1 and reducing in impact down to a more modest increase in year 3. A previous analysis conducted in 2019 with the same methodology showed revenue growth rates that were respectively 178%, 100%, and 71% (compared to 268%, 144% and 71%), this shows more a more positive outlook by founders for the future. It is possible that we see a greater impact from digital technology, a better understanding of scaling internet enabled companies, allowing for much more rapid growth of revenue in the earlier days of a company.

This update sees the addition of the Middle East and Africa in our regional analysis, reflecting the growth of our data in those regions, as well as their growing importance amongst global startup hubs.

While India led amongst small class companies by a large margin in 2019, with projected revenue growth of 970% in year 1, it is scaled back into a less precarious feeling second place with 359% in this update. Another change since 2019 is in the relationship between Europe and the United States. Previously, the two were remarkably close across all three years, with Europe maintaining a marginal lead. In this update, we see US startups taking a huge lead in year 1 (481% vs 293%), which diminishes up until Europe again leads in year 3 (107% vs 117%).

For the large class companies, the most striking difference might be the fall in the projected growth of Indian companies in year 3, falling from around 50% to 20%. It isn’t clear what might have caused this, nor why their year 1 growth might have increased from 60% to 150% – aside from the overall optimism at that stage.

About The Data

The data used in this article comes from the Equidam database. Equidam is the pioneer in online automated valuation for startups and private companies. As part of its activity, Equidam collects financial projection data from users, that can never be shared unless aggregated, and uses it to accomplish its mission of increasing valuation objectivity and accessibility.

The dataset surveys more than 25,000 companies in 90 countries, spanning from very early stage and pre-revenues startups to VC backed or more traditional companies.