Dear SaaStr: How Do You Balance Optimism with Realism When Pitching VCs?
Successful startups balance optimism with realism by presenting a compelling vision while grounding their projections in credible, data-backed assumptions.
Bear in mind, most VCs — not all, but most — have pretty good B.S. detectors. They will cut you some slack, but if you start saying things that just don’t tie to the numbers or reality, they won’t fund you. Even if at first they seem to lean it.
Here’s how to approach it:
- Show the Big Picture, But Back It Up
Investors want to see your ambition—how you’re going to dominate your market or create a category. But that vision needs to be supported by a clear, step-by-step plan. For example, instead of saying, “We’ll hit $10M ARR in two years,” break it down: “We’ll grow from $1M to $3M ARR by expanding our sales team and doubling our lead generation, then scale from $3M to $10M by launching into a new vertical.” This shows you’re not just dreaming—you have a roadmap to get there. - Use a Bottom-Up Approach for Projections
Startups often get into trouble by pitching top-down projections, like “If we capture 1% of a $10B market, we’ll hit $100M ARR.” That’s lazy. Instead, build your projections bottom-up: How many customers can you realistically acquire? What’s your average deal size? What’s your churn rate? This approach not only makes your numbers more credible but also shows you understand the mechanics of your business. - Be Transparent About Assumptions
Every projection is based on assumptions—conversion rates, sales cycles, customer acquisition costs, etc. Be upfront about these assumptions and explain why they’re reasonable. For example, if you’re assuming a 20% conversion rate, share data from your early sales efforts or industry benchmarks to justify it. Transparency builds trust and shows you’ve thought through the details. - Balance Optimism with Contingency Plans
Investors want to see that you’re optimistic but not blind to risks. Acknowledge potential challenges—like longer sales cycles or higher churn—and explain how you’ll address them. For example, “If our churn rate exceeds 10%, we’ll invest in a dedicated customer success team to improve retention.” This shows you’re prepared for the worst while still aiming for the best. - Focus on Momentum, Not Perfection
Investors know your projections won’t be 100% accurate. What they care about is momentum—are you growing consistently, and do you have a plan to keep that growth going? Highlight your recent wins (e.g., “We’ve grown MRR 20% month-over-month for the past six months”) and explain how you’ll sustain that momentum. This builds confidence in your ability to execute. - Avoid Overpromising. Especially Beyond Anything That Ties to Actual Trailing Data.
It’s tempting to inflate your projections to impress investors, but this can backfire. If you promise $10M ARR in two years and only hit $5M, you’ll lose credibility. Instead, set ambitious but achievable goals. As I’ve said before, it’s better to underpromise and overdeliver than the other way around. - Tie Projections to Funding Needs
Your revenue projections should align with your funding ask. For example, if you’re raising $2M, explain how that money will help you hit your next milestone (e.g., “This funding will allow us to hire five sales reps, which will increase our ARR from $1M to $3M over the next 12 months”). This shows you’re not just asking for money—you have a clear plan for using it to drive growth. - Leverage Early Traction
If you have early traction—like paying customers, strong pipeline growth, or high retention rates—use it to validate your projections. For example, “We’ve already closed 10 customers with an average deal size of $50K, and our pipeline is growing 30% month-over-month.” This makes your projections feel more achievable and less speculative. - Be Confident, Not Cocky
Confidence is key when pitching to investors, but don’t overdo it. If you come across as overly aggressive or dismissive of risks, you’ll lose credibility. Instead, strike a balance: Be confident in your vision and plan, but humble enough to acknowledge what you don’t know and the challenges ahead. - Remember: Investors Bet on People, Not Just Numbers
At the end of the day, investors know projections are just educated guesses. What they’re really betting on is you—your ability to execute, adapt, and lead. So, while your revenue projections matter, what matters more is your ability to tell a compelling story about why you’re the right person to make those projections a reality.
Balancing optimism with realism is an art, but it’s one of the most critical skills for founders raising capital.
