Hi! I’m glad you’re here. You’ve made it to issue #39 of VC Demystified🪄.

My name’s Nicole - I’m a Principal at an early stage venture fund, and I know firsthand that VC can often be a black box. Breaking into the industry may feel daunting and resources can seem scarce and inaccessible. I wanted to put together a newsletter to give others the playbook I wish I had when I first started.

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Today’s deep dive: A straightforward guide on how founders and VCs can build a realistic revenue forecast

^{My personal mission is to open as many doors as possible for other people and this newsletter is just one avenue to do that. As always, I will continue to post VC insights daily for free across my socials.}

A straightforward guide on how founders and VCs can build a realistic revenue forecast

Today, we’re breaking down how to create a revenue model for a startup.

This is one of the few technical analyses you need to know how to do to be an early-stage VC. The others are market sizing, cohort analyses, public comp multiples, and VC exit model analyses.

We’re going to walk through the key steps, show examples across different business models, and finish with a 7-year forecast that hits $100M—the figure VCs often underwrite to, assuming a company can reach that scale within 7–10 years.

What Is a Revenue Model?

A revenue model shows how a startup makes money—who pays, how much they pay, and when they pay. It’s a subset of the broader business model, which outlines the entire system of creating, delivering, and capturing value.

• Business Model: The high-level blueprint of how a company operates and competes (e.g., its target customers, distribution channels, and operational strategy).

• Revenue Model: A focused look at the sources of revenue (subscriptions, product sales, take rates on transactions, ads, etc.) and how much you make from each.

Step 1: Gather Historical Metrics (If Available)

Forecasting is only as good as the assumptions you feed into it, so look first at historical data:

• Customer Growth Trends – How quickly has the user base grown over time?

• Churn/Retention – For a subscription business, do customers stay long term or drop off quickly?

• Average Revenue per Customer or Average Contract Value (ACV) – For instance, a SaaS subscription fee or an average order value for e-commerce.

• Seasonality – Do sales spike during certain months or holidays?

These metrics anchor your model in reality. If the startup is brand new or pre-revenue, you may need to rely on industry benchmarks or competitor data.

Step 2: Define Key Metrics for Your Forecast

Regardless of the business model, you’ll need the following for a revenue build:

1. Starting Customers – How many paying customers at the start of each period (e.g., each year)?

2. New Customers – How many new customers join that year?

3. Churned Customers – How many customers drop off or cancel?

4. End Customers – The net total after churn.

5. YoY Growth Rate – How quickly the end customers grow compared to the previous year.

6. YoY Churn Rate – What percent of starting customers are lost each year?

7. Monthly Subscription Price (or Price per Unit) – How much does each customer pay per month (or per purchase)?

8. Gross Revenue: The total amount of money coming in before accounting for take rates or subtracting any refunds, transaction fees, or discounts.

9. Net Revenue: Gross Revenue minus those deductions—what actually flows to the business.

Step 3: Make Thoughtful Assumptions

Forecasting is part art and part science. The model’s quality depends on realistic inputs:

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