The founder walked into the investor meeting with confidence, maybe too much of it. The slides were tight, the story compelling, and when it came time to talk numbers, they delivered the classic line: “The market is worth $4 billion. If we capture just 2.5%, we’ll hit $100 million in revenue within four years.”
There was a pause. And not the kind you want.
The investors didn’t dig in. They nodded politely, asked a few token questions, and closed the meeting with a handshake and the usual “we’ll be in touch.” On the way back home, bag over the shoulder, the founder couldn’t shake the feeling that something had gone sideways. The logic was sound. So what went wrong?
The problem wasn’t the ambition, nor the tech. It was the approach. The founder had used a top-down forecast: a narrative built from market size down to a revenue target. And while it may look strategic on a slide, experienced investors have seen it too many times to take it seriously.
Forecasting isn’t about projecting what could happen in a perfect world. It’s about showing what will likely happen, based on actual strategy and resource assumptions. That’s where the bottom-up approach wins every time.
Top-down starts with the dream. Bottom-up starts with the execution.
Top-down forecasting begins with a market-sized headline and backs into revenue from there. But it glosses over the real work: customer acquisition, pricing strategy, team capacity.
Bottom-up flips that. It starts from what’s actually achievable: How many customers you can realistically sign, at what price, with your current resources, and builds a forecast that’s connected to execution from day one.
Top-down raises red flags. Bottom-up builds confidence.
Investors are allergic to vague market-share logic. “If we get just 1%” signals a lack of understanding of what it takes to sell.
Bottom-up models demonstrate a firm grasp of your business engine, CAC, LTV, churn, margins, team ramp-up. It shows you’ve done your homework and that your numbers aren’t just hopeful, but operationally grounded.
Top-down is static. Bottom-up is adaptive and scalable.
Top-down models assume a straight-line path to success, the bigger the market, the bigger the outcome. But they rarely adapt to changes in spend, team size or conversion rates.
Bottom-up forecasting is dynamic. It gives you and your investors the ability to test assumptions, model scenarios and scale plans with clarity. Want to see what happens if churn improves? Or if you raise more money and double your sales team?
A good bottom-up model makes that instantly visible, and believable.
If you’re ever tempted to include a top-down view, let it serve a single purpose: as a sanity check. Use it to confirm that your bottom-up forecast doesn’t somehow exceed the size of your addressable market, although, let’s be honest, that is almost never the case.
Itay Sagie is a strategic adviser to tech companies and investors, specializing in strategy, growth and M&A, a guest contributor to Crunchbase News, and a seasoned lecturer. Learn more about his advisory services, lectures and courses at SagieCapital.com. Connect with him on LinkedIn for further insights and discussions.
Illustration: Dom Guzman
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