Raising capital and meeting expectations

What I like to tell portfolio companies is that on average it will take 6 months to raise capital with some cycles being shorter and some being longer. Given that, it is imperative for a company to start thinking about its next round well ahead of time and the milestones it needs to hit to have the right momentum to get potential investors excited. One area that I would like to caution entrepreneurs is being too aggressive on the milestones and revenue forecast, particularly in the near term.

Let me explain. Like any other VC, I love to invest in companies going after big markets with huge revenue potential. That being said, I also like to see plans grounded in reality as well. Rather than get me excited, showing a revenue ramp from $1mm to $17mm to $65mm will actually do the opposite for me, raising more questions and concerns than general excitement. Along those lines, it is also imperative that when you share your plans with investors that you are pretty confident that you will realize your milestones or hit your numbers in the next 6 months as investors like to see if you can deliver on your promises. One cardinal sin is being overly optimistic in the near term and falling flat on your face in the due diligence process. It is much better to position yourself in a way that you can meet and exceed expectations during the due diligence process than the other way around. When this happens the rest of your forecasts become more believable.

Published by Ed Sim

founder boldstart ventures, over 20 years experience seeding and leading first rounds in enterprise startups, @boldstartvc, Saas 2.0, googlization of IT, security, smart data; cherish family time + enjoy lacrosse + hockey

5 comments on “Raising capital and meeting expectations”

  1. Totally agree that entrepreneurs and their team need to position themselves to meet/exceed forecasts. When aggressive milestones continually are missed, hard to believe in the teams optimism.

  2. Ed,
    Good advice – but do VCs actually invest in business plans with conservative forecasts? What do you think is credible revenue forecast for year 1-6 – one that you would invest in?
    -Raj

  3. Ed,
    Good advice – but do VCs actually invest in business plans with conservative forecasts? What do you think is credible revenue forecast for year 1-6 – one that you would invest in?
    -Raj

  4. Good points. You want to be optimistic in your approach to selling your company and portraying your excitement, but when it comes to the financial aspect, you will be held to your word. Play it smart when constructing your financial projects. Its better to overshoot than undershoot your milestones and goals, especially from perspective of the VC. You can achieve a profitable plan by understanding these vital concepts to success… http://www.readtheanswer.com/index.php?RTA=web2

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