"Paul, what should our revenue projections look like to attract venture capital?"I believe there is no good answer to that question. There’s no “right” projected number that makes us all want to throw money at a startup. Most VCs are savvy enough to ignore the number itself because frankly, most of the time, it's wrong. Not through any fault of the entrepreneur, but simply because if the future could be predicted, we would all be buying lottery tickets, and not starting (or investing in) companies.
What is important to understand and convey to a VC are the assumptions underlying the forecasts, because that’s what we go digging for when we look at those things. In other words, is the underlying assumption some formula about growth in page views (for example)? And if so, show me that those user growth projections tie directly back to the revenue projections. Then, take it one step further, and think about a basic sensitivity analysis. Show me three scenarios of user growth, and how that affects the revenue projections.
What the entrepreneur says: "Our revenue is projected at $25M for next year, because we think this is going to take off in a big way."What the VC is thinking: "Looks like that number was just pulled out of thin air. This person didn't do their homework. I'm going to tune you out and get back to answering emails on my BlackBerry."What the entrepreneur should have said: "Our revenue is projected at $15M for next year, because if we assume signed distribution deals with these 10 blogs, we should generate 100M pageviews, and with an assumed clickthrough rate of 3% etc..."
You get the point. The VC would rather see a smaller number built on a foundation of assumptions that you've verified, rather than a huge number which you pulled out of thin air.
See where I’m going with this? It’s not about getting the right number, or even getting the number you think the VC wants to hear. It’s about identifying the assumptions, explaining them, testing them, and justifying them.