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I was recently speaking with an entrepreneur who’d passed on an investment because it would not need yield the company at least a 10x growth opportunity. I told him those returns might be reasonable when investing in small businesses (under $5 million) but that he should consider lowering his ROI threshold when investing in larger ones.
My logic was twofold: First, bigger companies are harder to grow as quickly as small ones, so the growth percentages will be lower; and second, there’s the potential to make substantially more money on a bigger company investment, even if the ROI was only 3x to 5x.
Here’s how to know when it’s better to focus on percentage returns vs. dollar returns when assessing your investment opportunities.
