As a tech consultant for startups, I often hear people misusing multiples and percentages. As a primer, here's a simple table showing you what things look like when you buy and sell a company.
| Starting Cash | Ending Cash | Percentage of Return | Return Multiple |
|---|---|---|---|
| $1M | $1M | 0% | 1x |
| $1M | $1.5M | 50% | 1.5x |
| $1M | $2M | 100% | 2x |
| $1M | $3M | 200% | 3x |
| $1M | $4M | 300% | 4x |
| $1M | $5M | 400% | 5x |
| $1M | $6M | 500% | 6x |
| $1M | $10M | 900% | 10x |
| $1M | $20M | 1,900% | 20x |
| $1M | $100M | 9,900% | 100x |
| $1M | $1B | 99,900% | 1000x |
How to Calculate Return on Investment
If you invest $50k into a project and receive $64k, then your Return on Investment is 28%. You calculate this by subtracting the current (or expected) value from the original, then divide again by the original.
For those of you who like algebra, here's a second way to show the same info.
# Starting Investment
investment = $50k
# Current (or expected) Value
value = $64k
# Rate of Return / Return on Investment
ror = value / investment
# Decimal of Return
decimal_ror = ror - 1
# Percentage of Return
percentage_of_return = decimal_ror × 100
Keep It Simple
Here's yet another way to present the same information as the table above.
