Here is the next post in Brad Feld’s Finance Fridays. This time he talks about Sayahh’s revenue projections. Post is here.
Some interesting points:
1. It is critical to breakdown your revenue components into “digestible” segments. Brad always invests in software companies and his examples derive from that. But what about a medical device company or MEMS company. For example, if you are working on a medical device company, the revenue breakdown might show revenue coming from different channels (like hospitals, clinics, direct to patient, licensing). It is key to present in a way that truly tells your company’s story.
2. Speaking of stories, treat the revenue section of your projections as the first chapter in your company’s story book. “We will make revenue by doing X, Y and Z.” The projection model is the most critical and most underrated story telling device. If your model does not jibe with your other story elements (like a PowerPoint deck and oral presentation) you have failed to tell your story well. And you will be discredited for it…..and your fundraising will be more of a challenge.
3. Projections are never right – I am sure most of you know and expect that. I love the way Brad states this: “A skeptic might assert that it is a waste of time for a pre-customer startup to forecast revenues since they are guaranteed to be incorrect. When I look at a startup’s revenue projections, I don’t pay much attention to the actual numbers for just that reason. However, I do look at the structure of the model to see if they really understand their business and are actively tracking their key business drivers.” This goes back to having your projection model tell a story – sorry for the record skipping here (making the same point multiple times). If done correctly, it will show a solid (maybe not ultra deep) understanding of your strategy to ultimately make some jing and maybe even a positive bottom line eventually.
4. I do not consider myself a numbers guy. My corporate lawyer training did not focus on spreadsheets and my brain is not wired that way. BUT, I can easily tell when a model is good, bad or in the middle. If I can tell, then most experienced VCs can tell way better and faster. Get help with your financial models to make them sing your company’s “anthem”!
Enjoy the weekend. We are having a week of Indian Summer here in Ithaca – absolutely beautiful.