Your Startup's Revenue Projections Are Wrong

I often get asked:

What should our revenue projections look like to attract venture capital?

I believe there is no good answer to that question. There’s no “right” projected number that makes us all want to throw money at a startup. Most VCs are savvy enough to ignore the number itself because frankly, most of the time, it's wrong. Not through any fault of the entrepreneur, but simply because if the future could be predicted, we would all be buying lottery tickets, and not starting (or investing in) companies.

What is important to understand and convey to a VC are the assumptions underlying the forecasts, because that’s what we go digging for when we look at those things. In other words, is the underlying assumption some formula about growth in page views (for example)? And if so, show me that those user growth projections tie directly back to the revenue projections. Then, take it one step further, and think about a basic sensitivity analysis. Show me three scenarios of user growth, and how that affects the revenue projections.

See where I’m going with this? It’s not about getting the right number. It’s about identifying the assumptions, explaining them, testing them, and justifying them.