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Financial projections.

Hi all.

My company is currently trying to raise some seed/angel funding. I've been fortunate to get meetings with investor friends of mine and other investors through intros made by friends and acquaintances. We already have the interest of a couple angels and are in talks with some VCs. We've created a nice pitch deck, which we're using, but it's lacking one very important thing, which is financial projections. We already have our business/revenue model figured out. We're currently trying to come up with some good estimates of what our revenue and profits will potentially look like, but it's kind of difficult given we don't really know yet how our launch will work out and how effective our user acquisition strategy will be. I'm wondering what methods you guys are using to come up with some solid numbers.

Thanks.

- Jonathan

15 Replies

Vijay Goel, MD
1
0
Vijay Goel, MD Entrepreneur • Advisor
Founder Chefalytics, Co-owner Bite Catering Couture, Independent consultant (ex-McKinsey)
If you're really unsure, scott painter (truecar) highlighted that he used a flash tool with an excel backend. This allowed people to use a slider and set their own assumptions. You could probably hack something like this together today in tableau - lets people buy into their own thought rather than you trying to justify your specific number
Peter Morgan
1
0
Peter Morgan Entrepreneur
CEO at Zepto Ventures
Hi Jonathan, Projection means just that - projection. Come up with a best case and worst case scenario and then a few cases in between these as well. No one can really predict anything ahead of time in business so you need to realize yourself what it means to give projections. If you have some sales already then this obviously helps guide your forecasts.
Sean Hurley
1
0
Sean Hurley Entrepreneur • Advisor
Strategic Marketing Leader with strong financial results for growing organizations
Hi--

When you have a moment, let me know when you can talk. You need to have solid assumptions in place. How comprehensive is your business model?

Sean
Adam Ward
2
0
Adam Ward Entrepreneur
Management Consultant - KPMG Advisory
If you need a good template the attached is a start. As for estimating sales? Try and find a proxy in the market, such as adoption rates for a similar product. Best of Luck!
Frederic Moreau
1
0
Frederic Moreau Advisor
Agile Business Transformer
When you say that you already have a business/revenue model figured out, do you mean that you already have a few clients and you have an idea what's the cost to acquire a new client is?
If not, you should focus on business angels, have a solid idea that can be demonstrated through existing market data (Google search traffic, competitors' revenues, etc.), the rest is "powerpoint dreams" and it will worth nothing in front of a VC. It is better not to build financial projections in some cases, pitch your idea to an angel and see how you could figure out what the next step could be together.

Niraj Shah, MA(Cantab), CFA
1
0
Multi-Asset Discretionary Institutional and Private Client Investment Manager
My best advice would be to ensure conservatism, realism and consistency - under promise and over deliver. Start with first principles and build up your financial projections model from first principles - it will force you to think of each important metric in your business model. Worth looking at competitors in your space or the closest comparable business models - this should give you a very good starting point in terms of developing your own projections. N
Jonathan Barronville
0
0
Jonathan Barronville Entrepreneur
Software Engineer at npm, Inc.
@Vijay Goel, MD:

Thanks for the suggestion!

@Peter Morgan:

I totally agree. It's just hard to get that right set of numbers, because we want to be realistic and not look like fools when we present them to someone.

Thanks!

@Sean Hurley:

Sure thing! I'm on the road right now, but I'll reach out to you later. Our business model is pretty straightforward.

Thanks.

@Adam Ward:

Thanks Adam, but which template are you referring to?

@Frederic Moreau:

Sorry about that. When I say we have our business model figured, I mean that we've looked at the market, past successes and failures of others, and have come up with a model we're optimistic will stand the test of scale. However, maybe "figured" is the wrong term here, since we could always be wrong.

Much thanks for the advice, Frederic!

@Niraj Shah:

I agree 100%. One little thing that makes things harder for us is most of the companies in the market we're entering (such as Instagram and Flipagram) have no real business model, so it's hard to make connections there.

Thanks for the great advice!
Helen Adeosun
1
0
Helen Adeosun Entrepreneur
Co-Founder and CEO of CareAcademy.co
Doing this right now for two pitch competitions we should talk! Helen A Sent from my HTC One please excuse any typos.
Mark Neild
1
0
Mark Neild Advisor
Empowering quietly creative people to prosper through innovative yet authentic and engaging business models
Jonathan You have hit on exactly why some say financial projections are not worth anything as they are often founded on guesswork. There are 2 main ways todo it. 1. Top down. Take the size of the market you are initially addressing be it a local area, city, country or whatever. Exclude people who could not buy your product eg kids too young to use it, people too sick etc. or if you need certain technology then this can limit your potential market. next work out what proportion of your market are really likely to want your product. For your product it could be keen amateur photographers and people who like curating collections. Try to find benchmark data to support your estimates. You then just multiply them through Target market = 1M Not buying (25%) =- 250k Potential market. =750k Target cmrs (10%) = 75k This is your addressable market. Next you have to work out your possible share based on other competing products and relative attractiveness to customers and how much of the addressable market you can reach through your sales resources. Lots of guesses here. 2. Bottom up. Who is your ideal (archetypal) customer? Where do they hang out (social media group, read certain magazines, shop at certain stores etc. how many of them are there hanging out in these places and how many of these can you convert into customers. Best way to find out is to try selling to them, tracking your conversion rate and cost to sign them up in a series of mini campaigns. The more you experiment, the better your data on acquisition cost and conversion rate will become and the higher your conversion rate should become too. In simple terms your incremental customer volume = marketing budget/acquisition cost. Obviously revenue = price x incremental customer volume. Good luck with it Mark
Archer Hobson
0
0
Archer Hobson Entrepreneur
Junior iOS Developer at Velocis
Projections make me feel very silly for the reasons listed above. Its mainly guesswork, but with a combo of the advice above you can at least get in the ballpark. If you are seeking angel and are pre-revenue its best to highlight market size, and monetization strategies. The strategies may not stick but it will at least show you are thinking about forming a company that will make money. Know a number that you need in order to pay for salary and operating costs while you create the product, think as lean as possible, then double it. Don't say me and my two partners would make 100k each in normal jobs then ask for 300k. Understand that startups are about survival and that usually means on very little, plus you will need all the runway you can get to prove out your milestones so the more room the better. Everyone's situation is different so understand your needs under the umbrella of what angel funding is meant for, the minimum amount of investment to see a product created and tested. For seed rounds then you can get historical data to give financial projections.
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