We Care About Facts, Not Forecasts

Sometimes we encounter seed-stage founders in Japan that pitch us with detailed projections about their business. They’ll show us a slide or a spreadsheet presenting that they’ll make X amount of money within X years, sometimes even forecasting as far out as 5 years. Most seem ambitious, few seem conservative, but they all have one thing in common. They are made up!

If you are a seed-stage company, there’s no need to show investors a projection of revenue. You have little history to base your forecast, so all it is really telling us is that you are optimistic, and perhaps have a great imagination. The only thing that you can be certain of about your forecasts is that they will most certainly be WRONG.

Instead, tell us what you know. Tell us…

  1. How much money you have
  2. How much money you are burning per month (your burn rate), and what you are spending on
  3. How much money you will burn per month once you raise, and what you will spend our money on

These are the things that matter to us. Number 1 and 2 are facts, and number 3 is in your control. You can’t control your customers, but you can certainly manage your budget. If you do want to include some indication of how big your idea can be, try mentioning benchmarks. If you’re building a solution to a common problem in a particular industry, how much does that industry lose due to that problem? How many customers exist in that industry? These are facts, not forecasts, and they achieve the same goal: communicating to investors that this can be big.

We do realize that there are some investors in Japan that ask for detailed five-year financial plans. Not only do we think this is highly unnecessary and a waste of an entrepreneur’s valuable time, but it is also a signal that the investor may not be fit for the uncertainty involved in seed-stage investing. They may take ages on unnecessary due diligence, have bureaucratic internal approval systems, and have unreasonable reporting requirements post-investment. At the seed-stage, when time is critical, choose investors that you don’t have to lie to!

Read Japanese version here.

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