On Exponential Growth and ROI in Startups

What do investors really look for? On exponential growth and ROI in startups

I am writing this post following a lecture series I gave at the Peres Academic Center, titled “From Zero to Exit: Secrets from the Field”. One of the most interesting questions the students raised was: “What really interests investors? What do they look at when they consider investing in a startup?”

Over the years, in roles in which I worked with startups at different stages – from the initial idea all the way to the exit – I discovered that what almost all investors have in common is the search for exponential growth potential.

But before we get into that, I want to reassure you. There is no need to be intimidated by concepts like ROI or exponential growth. These are simple models whose purpose is to give depth and a clearer picture of our actions as founders. In the end, these principles are a reflection of market reality – and they help us plan intelligently and strategically.

What is ROI, and why is it so important?

One of the terms investors love to throw around in meeting rooms is ROI – return on investment. It is a financial metric that measures how worthwhile their investment is (in simple words, the money they put on you). The formula is simple:

ROI = (Net profit ÷ Total investment) × 100

This may sound intimidating, but in practice it works like this: if an investor puts ILS 100,000 into your startup and earns ILS 200,000, the return is 100%. But investors are not looking for that kind of ROI – they want to see how they can earn 10x or more, because they understand that in the startup market not everyone will survive, and the big winners need to make up for those that fell.

Exponential growth: what does it mean and why is it critical?

The startup world is built on accelerated growth. What does that mean? Unlike traditional businesses, where each new customer usually requires additional costs (such as more employees or more raw materials), in a good startup the cost stays almost fixed, but the value grows significantly as the number of users increases.

Take ChatGPT, for example. The more people use the system:

• The marginal cost stays fixed. There is no need to hire more employees or buy raw materials.

• The marginal profit rises. Every new user generates added value without the company having to invest much more.

• Network effect. New users not only add revenue, they also train the system and improve its quality.

This is exactly what investors are looking for: a product that can grow quickly without demanding infinite resources.

What do investors examine when they get into a startup?

1. Is there potential for a high ROI?

Investors look for investments that can return at least 10x. If your business model doesn’t convey that, it will be very hard to convince them.

2. Is your product scalable?

This means the product can grow without significantly increasing expenses. For example, one of the startups I mentored developed a simple but smart app that offered online medical consultation services. The business model was based on monthly subscriptions – so every new customer increased profit but did not require significant additional cost.

3. What is your growth engine?

Every startup has a “trigger” for rapid growth. For example, if you are developing a platform based on a network effect, such as a social community or an AI system, investors will want to know how each new user improves the value of the product.

So how do you present exponential growth to investors?

1. Transparency in the business model.

Investors want to understand exactly how you plan to grow. Present a clear plan that shows how your product is scalable, and what makes it cost-efficient yet profitable.

2. Accurate pricing.

It is important to show investors that you understand your numbers – not only the initial costs, but also the value you offer each user, and how that translates into profit.

3. Focus on the numbers that speak.

Don’t overload investors with irrelevant data. Focus on the numbers that show your real potential, such as CAC (customer acquisition cost), LTV (customer lifetime value), and projected return on investment.

In summary

Exponential growth is not just a buzzword that sounds good – it is an economic principle that guides investors, the market, and you as founders.

Don’t be intimidated by financial models – they are here to help you plan better.

Already at the stage of building your startup, ask yourselves:

• How does your business model demonstrate accelerated growth?

• How will you explain it to investors in a simple and effective way?

• How will you make sure investors see you as an opportunity – not a risk?

In the end, what investors are looking for is what you should be looking for too: depth, strategy, and forward thinking. Use it to build something that is not only successful – but game-changing.