Brad Feld undoubtedly is a Mount Rushmore venture capitalist in our opinion, not only for what he does for VC (Feld Thoughts and the Foundry Group’s returns amply prove it) but also off-court talking about Founder depression and mental health.
In the book he co-authored with his partner Jason Mendelson, “Venture Deals”, Feld reviews the fundraising materials Founders need to prepare before they go on the road to get money from investors.
As usual with Feld, he doesn’t mince his words. His entire quote reads as follows:
“The only thing that we know about financial predictions of startups is that 100 percent of them are wrong. If you can predict the future accurately, we have a few suggestions for other things you could be doing besides starting a risky early-stage company. Furthermore, the earlier stage the startup, the less accurate any predictions will be.”
Most Founders are unsure, to put it mildly, about the financial projections they feel they need to create for VCs. When they do them, they tend to take a hockey-stick approach: no revenues for months and a sudden uptick at some random point in the future. More importantly, these predictions (very) rarely pan out.
Why bother making them then? Wouldn’t your time be better spent elsewhere?
We regularly remind Founders that financial projections for startups have three objectives:
– Understand whether your unit economics work, or to phrase it differently, what needs to happen for the company to turn a profit;
– Communicate your business model and vision to investors; and