10X ROI

I encountered an issue on a financial model today that is particularly interesting

For seasoned finance pros helping founders build their models:

Story time!

This modeler came to me for a review of a model they'd built for a startup.

As a new FracCFO, they had lots of experience modeling

But not so much experience modeling specifically for startups.

They felt like they had things to 80%, but wanted a check just in case...

When I reviewed the model, I noticed something weird:

• A tab that calculated estimated yearly valuation (not necessary, but not weird.)

• That hit exactly 10X in Y7 (WEIRD.)

Okay, class: Hands up if you know why this is weird...

No?

Okay, one more hint...

I dug into the model and realized this 10x return was actually driving inputs in the revenue and cost calculations.

Meaning... this modeler had heard somewhere that VCs want a 10X return on their money, so they built the model such that revenue grew at whatever rate would result in a 10X return in 7 years.

The modeling prowess?

-> Ferrari-level execution

The logic?

-> Like driving that Ferrari directly into a flaming building.

The takeaway?

Your model should reflect the impact of reasonable assumptions on the business,

Not engineer the outcome you think an investor wants to see.

It’s tempting to reverse-engineer the story.

But when you do that, you're not modeling;

You're manifesting,

And investors can smell it from a mile away.

A great model tells the truth now,

So you can make better bets on the future.

VCs may want a 10X return.

But your job is to show the path,

Not fabricate one.

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