Calculate Financial Projections for Investment Presentations

1. Financial Projections for Presentations
December 3, 2015

2. Heather Onstott
Today’s Speakers
• VP of Finance,
Venture Advisors
• MBA
• Prior VP Finance
and Controller
positions at several
area startups/high
growth companies
• Over 25 years
accounting
experience
• BS, UNH;
MBA, Rivier College
• 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
Pete Basius

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 demonstrates to investors
that you have thoroughly considered every aspect of your
business model.

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…
– 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
FOR YOU
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
Common Terms
• Revenue/Sales
• COGS
• Gross Profit/Margin
• Operating expenses
• EBITDA
• Cash flow breakeven
• Working capital
• Burn rate
Important KPI’s
• Total cost of acquisition
• MRR/TCV
• Churn
• Month over month
increase in
revenue/expenses and
other key metrics (%)

10. Building Projections: How it works
• Fundamental components of model:
• Profit & Loss
• Balance Sheet
• Cash Flow
• These three schedules flow together and are essential to
understanding your business
• 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. Projections: Getting started…
What is your business model like?
• Look at other
businesses/competitors/comparables
• Link for SEC website
• Analyst reports
• Market surveys
• Don’t recreate the wheel

12. Projections: Getting started…
Start with Revenue
• 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. Group expenses according to function:
 COGS/COS
 Selling
 Marketing
 Engineering & Development
 General & Administrative
Determine headcount first then build expenses
around that
 Who are your key hires?
 What function and timing and cost?
Projections: Expenses

14. Projections: Expenses
• Payroll expenses
– Salaries and payroll taxes
– Other compensation (bonuses, commission)
– Fringe benefits (medical/dental insurance, etc)
– Founders can work for free – but no one else!
• Rent
• Legal and Accounting
• Insurance
• Variable expenses (T&E’s)

15. Projections: final checks
• Take a step back and determine if your assumptions
are reasonable and realistic
• Check financial integrity of your model
• Consider timing of major financial milestones: cash
flow breakeven, profitability, etc.

16. Pitching projections: What’s the “ask”?
• Put yourself in the investor’s seat – what are they getting
for their money?
• Does your ask for cash get you to a value creation point?
• Cash gives you options
• Plan on 12-18 months of cash burn
• The secret to life is “t”
– “t” is the variable for “time” in mathematical equations… and
time in projections is everything

17. 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

18. 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

19. Good Example – For Presentation Purposes
2015 2016 2017 2018 2019
Revenues
Stream 1 25,000$ 100,000$ 750,000$ 2,000,000$ 3,500,000$
Stream 2 - 150,000 400,000 1,150,000 1,650,000
Total Revenues 25,000$ 250,000$ 1,150,000$ 3,150,000$ 5,150,000$
Cost of Goods Sold 25,000 187,500 575,000 1,417,500 2,060,000
Gross Margin - $ - 62,500 575,000 1,732,500 3,090,000
Gross Margin - % 0% 25% 50% 55% 60%
Operating Expenses:
Sales & Marketing 100,000 250,000 325,000 400,000 475,000
Research & Development 325,000 350,000 375,000 400,000 425,000
General & Administrative 250,000 300,000 325,000 360,000 375,000
Total Operating Expenses 675,000 900,000 1,025,000 1,160,000 1,275,000
Operating Income / (Loss) (675,000)$ (837,500)$ (450,000)$ 572,500$ 1,815,000$
Headcount 5 7 8 10 12
Capital Expenditures 100,000 250,000 150,000 100,000 50,000
Cash Burn (775,000)$ (1,087,500)$ (600,000)$ 472,500$ 1,765,000$

20. 20
Good Example – Graphs
$750k $3MM
Raise Raise
2015 2016 2017 2018 2019
Expenses Revenue Customers
#Customers
$(inmillions)
$5
$4
$3
$2
$1
500
400
300
200
100