QUESTION OF THE DAY: How conservative should our financial forecasts be?

"How conservative should our financial forecasts be? We plan on raising a $500,000 seed round with a venture capital firm."

That is a question I often get. The answer is simple: Do not be conservative, NEVER, NEVER, NEVER!

Why "NEVER"? Because the VCs will cut every sales number in half, will double the cost to get the first product launched and assume you need twice the capital you planned on to get going, regardless of how you try to show them that you are conservative with your numbers.

That is "The Rule of 2" applied to financial forecasts of startups. It is a hard rule, meaning it is always applied and never forgotten (by investors).

Engineers want to construct safe inventions so they build in safety factors. They do the same to their financial forecasts. That is good for building airplanes but bad for raising money for startups.

You want your story (bplan) to be believable (plausible). So the numbers have to be realistic. Yet the numbers have to reflect your optimism (MBAs call this your best case scenario). Entrepreneurs are optimistic. It is in their genes. It never goes away. The glass is forever half full.

BOTTOM LINE: So behave like serial entrepreneurs and forecast with confidence. Get excited with your numbers. Be bold without being arrogant. Go for it! The large valuation, the huge IPO, the dream come true. That is what this is all about. That reflects an unfair advantage manifest in numbers that make people say "Wow!" It is yours to forecast and tell exciting stories about.  Just do it!