<\/p>\n
When I was<\/span> an early-stage founder, I bristled at the idea of making a five- or even three-year financial projection of my business. I can promise you one thing: It will be dramatically<\/em> wrong. But as part of your fundraising, you need to make them anyway, and there are a couple of great reasons for that.<\/p>\n VCs understand as well as you do that you can\u2019t predict the future. Hell, that isn\u2019t just true for companies at the pre-seed stage; if founders could predict the future, there wouldn\u2019t be so much nervousness around IPOs.<\/p>\n But it\u2019s worth keeping in mind that your investors aren\u2019t asking you to predict to the nearest penny how your company is going to perform in 2030. They are looking for two very specific things: Whether you understand how the financial dynamics in your business work and whether you are venture-scale.<\/p>\n To be venture-investable, you need to be \u201cventure-scale.\u201d That means that if an investor puts $1 million into your business, you need to have a very firm grasp of how you\u2019re going to turn that $1 million investment into a $10 million return. Now, not every business is going to do that, of course, and it\u2019s not easy to guess which businesses are going to successfully give investors a 10x return.<\/p>\n I can guarantee you one thing, though: If the financial projections show steady 10% year-on-year growth for the next decade, it may be a good lifestyle business, but it\u2019s never going to give a 10x investment return.<\/p>\n In other words: Yes, your financial projections need to be \u201crealistic,\u201d in the sense that they show that there\u2019s a logical progression from where you are to where you want to be. But you also need to show, in spreadsheets and numbers, that you at least have a fighting chance at being venture-scale. If your most optimistic, most aggressive growth trajectory falls short of this, you\u2019re not going to have a good time as a VC-backed startup founder: It shows that you have fundamentally misunderstood why investors invest.<\/p>\n When you are raising money, you need to show your investors that you have clear plans for why you are raising money. In other words: What are you going to do with the money?<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":" When I was an early-stage founder, I bristled at the idea of making a five- or even three-year financial projection of my business. I can promise you one thing: It will be dramatically wrong. But as part of your fundraising, you need to make them anyway, and there are a couple of great reasons for […]<\/p>\n","protected":false},"author":1,"featured_media":1197893,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[21],"tags":[],"class_list":["post-1197892","post","type-post","status-publish","format-standard","has-post-thumbnail","category-celebrity-gossip"],"_links":{"self":[{"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/posts\/1197892","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/comments?post=1197892"}],"version-history":[{"count":0,"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/posts\/1197892\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/media?parent=1197892"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/categories?post=1197892"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/tags?post=1197892"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Being venture-scale<\/h2>\n
Understanding the financial mechanics<\/h2>\n