Exit multiples are a standard figure used to estimate the potential value of your investment at sale. Typically, investors do not realize gains on venture investments until there is a liquidity event. This can be a large follow on round, IPO, or acquisition of the company. In order to determine the value of the company at that stage a multiplier is typically applied to Revenue or EBITDA, which is a proxy for cash flow. Which multiple is used is typically dependent on what is common for the company’s industry. Some industries, such as technology, command high exit multiples, which can range from 20-30 times sales and above, and others, such as consumer product, tend to command exit multiples closer to 1-2 X Sales. Why is there such a big divide? Two simple answers, scalability and growth. Companies that can grow extremely fast and reach very large markets command large multiples. In technology, there are fewer barriers to growth as distribution needs much less infrastructure for digital goods. However in consumer products, there typically needs to be retailers, distributors, inventory, consumers are widespread, in-person marketing, and all sorts of things that slow the speed of growth. All this results in lower growth rates and scalability, which put downward pressure on exit multiples.