Everyone knows that you made them up, nobody knows the future, all startup pitches predict hundreds of millions of revenues at some stage in the future. Why bother putting these shaky financials in?
Yes, there is no point in including your highly precise 10 year financial forecast model, exactly for these reasons, but, there is still a place for financials in your pitch. Here is what I usually do.
- A reasonably detailed and precise “forecast” of the short term financials. In most startups, this usually involves only costs. And unlike the revenues, you can be pretty certain about where you are going to spend that investment on in the near future. The benefit: 1) investors know where their money goes, and 2) investors see that they are talking to a CEO who seems to know what she is doing, has things organised.
- A very high level annual revenue outlook for the next 5 years. Nobody will pay much attention to this hockey stick chart.
- But - and this is the useful bit - add another slide that shows in a few simple calculations what you would have to believe in order for that year 5 revenue and profit number to be true. The best is a multiplication of 5-10 simple numbers: # countries, people / country, market share, price / user, gross margin, fixed $ million cost. You teach the investor how your business model works (what factors are important) and provide a way to evaluate whether your forecast is highly optimistic, or totally insane. The underlying Excel model can still be very detailed (it should be), but the 5-10 numbers should be very simple. I have had design projects where the company went back and revisit the Excel model because of an inconsistency in these high level numbers.
Art: Albert Anker, The Fortune Teller, 1880
