Join our experts in an overview discussion of financial projections. Learn the key metrics that will get investors to notice you, as well as those that will get you rejected. If you have no idea where to begin with your financial projections, this program is for you. Experts - Heather Onstott, Launch Capital Heather Shanahan, Venture Advisors

1. Financial Projections for Presentations

2. Today’s Speakers
Heather
Onstott
• Senior Controller
Consultant, Venture
Advisors
• CPA
• Prior Controller,
Accounting
Manager at several
area startups/high
growth companies
• BS, UVM;
MSA/MBA
Northeastern
• Venture Partner,
former Director of
Small Business with
LaunchCapital
• Interim CEO of the
Nanny Caddy, a
LaunchCapital
portfolio company
• Over 20 years
experience in small
business finance
• BA, Wofford College;
MBA, Dartmouth
Heather Shanahan

3. Financial Projections: WIFM?
Today’s presentation will focus on the how and why of
building and pitching financial projections
•How: Creating financial projections using a spreadsheet and some
common accounting knowledge shows you where to focus your
resources
•Why: Creating financial projections shows investors that you have
carefully considered all financial implications

4. Financial Projections: 3 Objectives
1. Force discipline and objectivity through creating a
methodical approach
2. Demonstrate thorough understanding of your
company’s business model
3. Provide answers to “what if?”

5. Building Projections: Yeah, but…
I’ve heard that I don’t really have to build a business plan with
financial projections because no one actually reads it…
• Business plans with financial projections are necessary…
FOR YOU
– Bottoms-up vs. Top-down
– HINT: You're trying to talk yourself out of this!
• Financial projections are a key portion of the due diligence
most investors perform
Investors are more interested in the assumptions made when
building financial projections, not the exact bottom line

6. Building Projections: Pulp fiction?
Projections are just imaginary anyway, so what does it matter
what I put in?
A common mistake is to have illogical numbers in the
projections
– All numbers should be tied to your growth assumptions
• Ex 1: If sales cycle is 6 weeks, should there be sales in month 1?
• Ex 2: If business is seasonal, should growth be smooth in every month?
– All numbers should tie with a rough cash flow statement
• Either a separate tab or at the bottom of the P&L
Projections that have not been planned properly make investors
question your understanding of your business model

7. Building Projections: What if…
Scenario planning is just worst-case (out of business), expected
(what I really think will happen), and best-case (Google buys us
for a bazillion dollars), right?
Focus on YOUR key success metrics to drive scenario planning
– Sales traction
– Gross margins
– Incremental headcount
Fundraise amount range should encompass most likely scenarios to
avoid expensive “Bridge” or “A-1” rounds

8. More on Scenario Planning…
Worst-case scenarios should answer “What happens if there is
no outside capital?”
– if the answer isn't 'grow slower', is this a pipe dream?
Best-case scenarios should answer “What does this business
look like if everything goes right?”
– if the answer isn’t a huge financial win for your investor, is this a pipe
dream?
Most-likely scenarios should answer “What does this business
look like following comparable companies’ growth paths?”
– if the answer isn’t able to be funded with the current “ask”, is this a
pipe dream?
Goldilocks got it right: examine all options!

9. Building Projections: Common Terms
• Revenue/Sales
• COGS
• Gross Profit/Margin
• Operating expenses
• EBITDA
• Cash flow breakeven
• Working capital
• Burn rate

10. Building Projections: How it works
• Fundamental components of model:
• Profit & Loss
• Balance Sheet
• Cash Flow
• Above schedules should be presented by month
• Have an assumptions page: this allows flexibility – change
assumptions for different growth scenarios
• Assumptions are the backbone of your projections, so you
should know them COLD
Excel is your friend, but be careful with cell
references – it’s easy to make a mistake!

11. Building Projections: Let’s get started…
Estimate 1% of $100
bazillion market
share
JUST KIDDING!

12. Projections: Start with Revenue
Take a “Bottoms Up” approach
• Ex: We have tracked X unique visitors to our website
and with an industry averages 2% conversion rate,
sales will be Y.
• Ex: Survey revealed customers are willing to pay $X
for a product with Y features.
• Ex: Q4 sales were $X. With a customer acquisition
cost of $Y, we expect a 20% growth rate as a result
of marketing efforts
• All revenue projections must be backed up with a
sales plan
Econ 101: revenue = price * volume. Knowing which element is
driving your company’s revenue is a key metric.

13. Projections: Add in expenses
Include details of relevant expenses/activities
related to:
 Selling
 Marketing
 Engineering & Development
 COGS
 General & Administrative
Determine headcount first then build expenses
around that

14. Projections: Add in expenses
• Payroll expenses
– Salaries and payroll taxes
– Other compensation (bonuses, commission)
– Fringe benefits
– Variable expenses (T&E’s)
• Legal and Accounting
• Insurance

15. Projections: Other considerations
• You'll need space one day that isn't free
• It is illegal to hire someone and not pay them
• Equity + cash = total compensation
• As equity values increase, cash compensation should increase as
the less expensive long-run pay option (this means you are
WINNING!)
• Research how much things cost – don’t guess!
• Call your identified suppliers for costs, terms of materials and
development costs

16. Projections: final checks
• Look for gradual (realistic) P&L improvement over
time
• EBITDA excludes expenses that are not core to a
company’s operations; allows for comparisons
without regard to capital structure.
• EBITDA measures the progression of the business but
cash flow is ultimately what the investors look for
• Consider reasonableness of when you get to cash
flow breakeven and the total cash you are asking
for. Does it make sense?

17. Pitching projections: What’s the “ask”?
Financial projections need to tie to the amount of the raise
– Fundraising takes time, so 12-18 months of cash per raise
– Identify milestones to be hit and cost of each one
– The sum of those milestone costs is the raise amount
– The "cushion" in the raise is not X%, it's the cost difference in
the most likely scenarios
The secret to life is “t”
– “t” is the variable for “time” in mathematical equations… and
time in projections is everything

18. Pitching Projections: Rookie moves
– CTRL+C+P entire excel model into a slide
– Using anything less than 18-point font
– Littering clipart from 1995… or 2013
– Stating projections to the $.01
– Failing to summarize projections
– Using ANY of the following phrases:
• “conservatively estimated…”
• “at only X% of the market…”
• “with no competition…”
– Forgetting to explain what the amount you raise achieves
– Relying on a short-term exit at a high multiple

19. Pitching Projections: Expert moves
• Know your audience
– The earlier you are in the development of your business,
the more interested in your assumptions the investors
are…so know you’ll be discussing them in detail.
Painstaking detail.
• Be rich, not king
– Does a new hire cut costs or increase revenue? This will
drive the timing of a new hire.
• Don’t forget that headcount is a step-function
• What is B/E expectation for a new hire?
– Good metric for HC is sales/employee – these numbers are
benchmarked and available with some research.

20. Bad Example
Revenue
Custom runners $ 480,000 624,000 811,200 1,054,560 1,370,928
Standard runners 60,000 78,000 101,400 131,820 171,366
Total Revenue $ 540,000 $ 702,000 $ 912,600 $ 1,186,380 $ 1,542,294
COGS
Custom runners $ 120,000 $ 156,000 $ 202,800 $ 263,640 $ 342,732
Standard runners 39,000 50,700 65,910 85,683 111,388
Total COGS $ 159,000 $ 206,700 $ 268,710 $ 349,323 $ 454,120
GROSS PROFIT $ 381,000 $ 495,300 $ 643,890 $ 837,057 $ 1,088,174
Expenses
Selling Expenses
Commission $ 36,000 $ 46,800 $ 60,840 $ 79,092 $ 102,820
Marketing/Advertising 50,000 50,000 100,000 150,000 200,000
Research and Development 40,000 50,000 62,500 78,125 97,656
General and Administrative Expenses
Office Rent 30,000 30,000 30,000 30,000 30,000
Insurance 9,600 9,600 9,600 9,600 9,600
Office Utilities 4,800 4,800 4,800 4,800 4,800
Supplies 18,000 18,000 18,000 18,000 18,000
Salaries 120,000 120,000 120,000 120,000 120,000
Benefits 30,000 30,000 30,000 30,000 30,000
Miscellaneous 21,600 21,600 21,600 21,600 21,600
Total Expenses $ 360,000 $ 380,800 $ 457,340 $ 541,217 $ 634,476
EBITDA $ 21,000 $ 114,500 $ 186,550 $ 295,840 $ 453,698

21. Good Example - Financial Projections
Capital Market Exchange ($000)
2009 2010 2011 2012 2013 2014 2015
Revenue
Stream Network* 1
$ 123 $ 2,854 $ 7,223 $ 13,730 $ 2 0,707 $ 2 8,336
Stream Risk Management 2
Services $ - $ - $ 1,609 $ 4 ,262 $ 7,645 $ 1 1,530
Total Revenue $ 123 $ 2,854 $ 8,831 $ 17,992 $ 2 8,352 $ 3 9,866
Expense
Research & Technology $ 20 $ 134 $ 8 17 $ 2,009 $ 3 ,427 $ 4,866 $ 6,679
Salaries
Labor 10 53 505 $ 1,353 $ 2 ,352 $ 3,299 $ 4,338
Lease Data space
Acquisition 27 111 $ 188 $ 287 $ 395 $ 540
Equipment
Technology 0.3 45 158 $ 388 $ 663 $ 995 $ 1,537
Licensing
Other 10 9 43 $ 8 0 $ 125 $ 177 $ 263
Sales & Client Svcs $ 3 $ 38 $ 6 96 $ 1,519 $ 2 ,338 $ 3,931 $ 5,042
Labor 32 668 $ 1,464 $ 2 ,252 $ 3,787 $ 4,798
Travel 3 5 24 $ 4 6 $ 70 $ 122 $ 206
Other 0.1 1 4 $ 9 $ 15 $ 2 3 $ 3 8
General & Administrative $ 14 $ 46 $ 2 29 $ 568 $ 951 $ 1,368 $ 1,922
Total Expense $ 37 $ 218 $ 1,742 $ 4,095 $ 6 ,715 $ 1 0,165 $ 1 3,643
Net Income pre-tax $ (37) $ (95) $ 1,112 $ 4,736 $ 11,277 $ 1 8,187 $ 2 6,223
* Cash basis contract value

22. 22
Good Example – “Breakeven 2015”
Raise
$750K
Raise
$3 MM