The largest customer cuts usage. Do you still invest?
A good memo shows what would make you wrong. Reopen the decision when a customer changes its use of the product.
The question
Before Series A signs, MorrowDesk’s largest customer says it will cut its subscription by 80%. The customer was 25% of the $3.6 million ARR. Other accounts are unchanged. Your draft recommendation was a conditional $1 million follow-on.
| Before | After notice | |
|---|---|---|
| Largest customer ARR | 900 | 180 |
| All other ARR | 2700 | 2700 |
| Total ARR | 3600 | 2880 |
Invented data. The reduction starts at renewal next month. These are contracted recurring amounts, not collected cash. Do not infer a new runway from revenue alone.
- CustomerThe workflow helps, but our own AI tool now handles most simple tickets. We will retain MorrowDesk for exceptions.
- FounderThe product still works, and usage from new logos should replace the lost account.
“Revise the investment memo and say what you would do before signing.”
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A strong answer, step by step
Open each step in turn. This is one strong answer, not the only one.
Step 1: Update the fact base
What would you do here? Open the move you’d make.
Reduce all company ARR by 80%.
Tempting, but it misses something. Only one customer, originally 25% of revenue, made the reduction.
Calculate $900,000 × 80% and subtract $720,000.
The strong move. This produces the correct $2.88 million company ARR.
Keep $3.6 million until cash collection falls.
Tempting, but it misses something. The next contract change is already known and affects the forward revenue base.
See how a strong candidate says it
“The lost $720,000 is 20% of company ARR. Contracted ARR falls from $3.6 million to $2.88 million.”
Why it works: The customer’s 80% reduction is not an 80% company decline.
Step 2: Update the thesis
What would you do here? Open the move you’d make.
Call it one-off churn because only one customer complained.
Tempting, but it misses something. A single large customer can reveal a mechanism that affects many accounts.
Declare the whole market uninvestable.
Tempting, but it misses something. The customer still pays for exceptions. Test whether that is a viable product.
Test substitution and paid exception handling in other accounts.
The strong move. This asks whether the cause generalizes and whether an investable use case remains.
See how a strong candidate says it
“The new risk is substitution for simple work. I need to know whether exception handling is valuable and repeatable across customers.”
Why it works: The evidence challenges the product’s durable scope, not just the forecast.
Step 3: Reopen price and financing
What would you do here? Open the move you’d make.
Use the old revenue multiple because the price was agreed verbally.
Tempting, but it misses something. The forward ARR has changed. Recheck the economics before signing.
Recompute on $2.88 million ARR and ask how the plan changes.
The strong move. This identifies the price effect without pretending a revenue multiple alone sets value.
Deduct $720,000 from valuation and call the price fixed.
Tempting, but it misses something. There is no rule equating lost annual revenue with an equal valuation change.
See how a strong candidate says it
“At $40 million pre-money, valuation-to-ARR rises from 11.1× to 13.9×. I need an updated plan before agreeing to the same terms.”
Why it works: A changed revenue base changes the terms you are underwriting.
Step 4: Record a new decision
What would you do here? Open the move you’d make.
Keep the check and add one sentence to the risk section.
Tempting, but it misses something. That acknowledges the fact but leaves the unsupported decision unchanged.
Pause the check, name the two needed checks and reopen terms.
The strong move. The next action follows directly from the changed evidence.
Pass and tell the founders no new fact could change the decision.
Tempting, but it misses something. A revised scope, stronger retained demand or changed terms could still support a new case.
See how a strong candidate says it
“I would pause the conditional follow-on. I need independent substitution checks and an updated cash plan; the earlier memo no longer supports signing.”
Why it works: Revision should change an action, not only a risk paragraph.
The answer, in short
- Decision
- Pause the conditional follow-on and reopen diligence and terms.
- Because
- ARR falls 20%, and the customer’s reason challenges the product’s scope of value.
- What would change it
- Other accounts show durable paid demand for exceptions, and an updated plan supports the financing.
Common traps
- Updating the risk list while leaving the decision untouched.
- Treating an 80% customer cut as an 80% company cut.
Check your answer
- Did I calculate the $720,000 and 20% reduction?
- Did I identify substitution as the causal risk?
- Did I update the price comparison without inventing fair value?
- Did I change the action and name a way back?
Last reviewed Nov 10, 2026