Every venture capital firm wants to see realistic financials

Here's the rub -- on the one hand, any venture capital firm will of course want to see realistic financials. On the other hand, if the financials suck, it's not likely that you're going to raise money from a venture capital firm - or any other type of small business investor. The key is to find a middle ground somewhere. You'll have to do your best to present the possibility of exciting returns to the venture capital firm without forecasting ridiculous results that can't be attained by even the greatest entrepreneurs who ever lived.

When presenting "the numbers" to a venture capital firm, there are countless bad ways to go about it, and only a couple of good ways. We've outlined a good way below.

What's the best way to approach the financials?

Try to explain to the investor that it's hard to be certain about numbers that you can't prove. Afterall, they're just assumptions. Don't be wishy-washy about it; investors aren't stupid. They know that you are just making assumptions and can't be certain about any of it. They just want to see that you have thought through the process and can make a solid case for your estimates. It's just sort of a game that is played between entrepreneurs and investors -- it's much more of an art form than a science. You must be realistic though. Many investors will automatically look at any given business plan and allow for it to make half of the projected revenues and cost twice as much as projected. And this almost always seems to come true when the plan is executed.

The value of assumptions

Every business starts with a few assumptions that are unproven -- the cost to acquire a customer, the number of customers that will buy the product in the first year, and so forth. When you create your plan, the best thing that you can do is suggest those assumptions will be X and build a plan around them. At least then, an investor can say "I see that if the business does X, it will yield Y results". This gives them something tangible to work with and shows that you have put some thought into the plan. If the investor is able to see even a fraction of your vision and you have a truly solid business model, you might be on your way to a deal.