Numbers lie, but you don’t have to!
January 15, 2008
Rick Segal has a post titled “VC Audience - Don’t Play to the Crowd” where he suggest not building financials with ‘hockey stick’ growth numbers. Specifically,
I’ve heard this story a number of times. You don’t get financing unless you show an amazing ‘hockey stick’ of growth which lets the VC folks make magic on an IRR spreadsheet so you show 1000% ramp against you and your team’s own judgement. This is a deadly trap. You place your creditability, future financing, and potential long term viability of your company on the line when you get sucked into this nonsense of telling me and the VC junta what you think we want to hear. Faced with the blown numbers, the old guys won’t put money in, blaming management for not making the numbers. They now have to scramble to explain why the new guys -moi- should believe the forecasts on a go forward basis. All of this impacts value which isn’t good for anybody.
He suggests under promising and over delivering. I agree. No one believes the numbers anyway, you just set yourself up for a board confrontation in twelve months. Guess what they will suggest, “we need a seasoned CEO to take over, we are sorry but you can’t blame us.” Keep your job, offer achievable projections…
