BLOG STARTUPS, VENTURE AND THE TECH BUSINESS

April 24 2012
by Scott Johnson

Yes, You Really Need That Revenue Ramp Slide

I advise entrepreneurs all the time about their pitch decks, and one of the more common complaints I hear is “if we all know that it is complete BS, why do investors insist we show a revenue ramp slide with a $50 million top line in four years?”  And I admit, on the surface, it does feel like grown-ups should be able to have an honest conversation about likely growth scenarios that don’t portray some kind of fantasy best case.  But don’t do it.  Your job in a pitch meeting is to paint visions of sugar plums, to enable anyone in your audience to get someone else excited about your company.  A sober portrayal of an unexciting revenue ramp?  Bad idea.

Every investment a venture fund makes must have blowout potential.  So your revenue forecast slide needs to convey what could happen if execution is great and luck is on your side.  “This entrepreneur is unusually sober to the challenges he is facing” does not get anyone writing checks.  You want them to wake up the next morning thinking “this entrepreneur is ambitious, and his company could catch fire in the next 6 months, and if I don’t get in now I will regret it for the rest of my life!”

The conversation will immediately turn to the assumptions driving growth, which is the very best way to understand the risks in your business.  Investment required, sales cycle, CAC, channel performance, margin assumptions, scalability, market size, all of the details in your model that support that top line reveal to the investor the likelihood it will be a blowout or a blowup.  So the fantasy revenue slide starts an important adult conversation.  It needs to be there, and if the assumptions underlying that ramp are outlandish, you probably should not try to raise venture money.

 

COMMENTS

May 2 2012
by David Shives

Thanks again for this post Scott. Just before my first meeting with a VC, I couldn’t get past my my fear that the revenue slide would quickly turn into a “Magical thinking” slide. I have come to terms with knowing that my financial model will be incorrect, my error was to exclude it all together. The VC reviewing my presentation seemed to like the product demo, but had no idea just how big of a sandbox we were talking about.

There is a profound difference between opportunity and fantasy and I think this post defines the difference.

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