2. Heather
Onsto,
Today’s
Speakers
• Senior
Controller
Consultant,
Venture
Advisors
• CPA
• Prior
Controller,
Accoun>ng
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
porMolio
company
• Over
20
years
experience
in
small
business
finance
• BA,
Wofford
College;
MBA,
Dartmouth
Heather
Shanahan
3. Financial
Projec>ons:
WIFM?
Today’s
presenta>on
will
focus
on
the
how
and
why
of
building
and
pitching
financial
projec>ons
• How:
Crea>ng
financial
projec>ons
using
a
spreadsheet
and
some
common
accoun>ng
knowledge
shows
you
where
to
focus
your
resources
• Why:
Crea>ng
financial
projec>ons
shows
investors
that
you
have
carefully
considered
all
financial
implica>ons
4. Financial
Projec>ons:
3
Objec>ves
1. Force
discipline
and
objec>vity
through
crea>ng
a
methodical
approach
2. Demonstrate
thorough
understanding
of
your
company’s
business
model
3.
Provide
answers
to
“what
if?”
5. Building
Projec>ons:
Yeah,
but…
I’ve
heard
that
I
don’t
really
have
to
build
a
business
plan
with
financial
projec8ons
because
no
one
actually
reads
it…
• Business
plans
with
financial
projec>ons
are
necessary…
– Bo,oms-‐up
vs.
Top-‐down
– HINT:
You're
trying
to
talk
yourself
out
of
this!
• Financial
projec>ons
are
a
key
por>on
of
the
due
diligence
most
investors
perform
FOR
YOU
Investors
are
more
interested
in
the
assump1ons
made
when
building
financial
projec1ons,
not
the
exact
bo;om
line
6. Building
Projec>ons:
Pulp
fic>on?
Projec8ons
are
just
imaginary
anyway,
so
what
does
it
maCer
what
I
put
in?
A
common
mistake
is
to
have
illogical
numbers
in
the
projec>ons
– All
numbers
should
be
>ed
to
your
growth
assump>ons
• 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
>e
with
a
rough
cash
flow
statement
• Either
a
separate
tab
or
at
the
bo,om
of
the
P&L
Projec1ons
that
have
not
been
planned
properly
make
investors
ques1on
your
understanding
of
your
business
model
7. Building
Projec>ons:
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
trac>on
– 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
op1ons!
9. Building
Projec>ons:
Common
Terms
• Revenue/Sales
• COGS
• Gross
Profit/Margin
• Opera>ng
expenses
• EBITDA
• Cash
flow
breakeven
• Working
capital
• Burn
rate
10. Building
Projec>ons:
How
it
works
• Fundamental
components
of
model:
• Profit
&
Loss
• Balance
Sheet
• Cash
Flow
• Above
schedules
should
be
presented
by
month
• Have
an
assump8ons
page:
this
allows
flexibility
–
change
assump>ons
for
different
growth
scenarios
• Assump>ons
are
the
backbone
of
your
projec>ons,
so
you
should
know
them
COLD
Excel
is
your
friend,
but
be
careful
with
cell
references
–
it’s
easy
to
make
a
mistake!
12. Projec>ons:
Start
with
Revenue
Take
a
“Bo,oms
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
acquisi>on
cost
of
$Y,
we
expect
a
20%
growth
rate
as
a
result
of
marke>ng
efforts
• All
revenue
projec>ons
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. Include
details
of
relevant
expenses/ac>vi>es
related
to:
Selling
Marke>ng
Engineering
&
Development
COGS
General
&
Administra>ve
Determine
headcount
first
then
build
expenses
around
that
Projec>ons:
Add
in
expenses
14. Projec>ons:
Add
in
expenses
• Payroll
expenses
– Salaries
and
payroll
taxes
– Other
compensa>on
(bonuses,
commission)
– Fringe
benefits
– Variable
expenses
(T&E’s)
• Legal
and
Accoun>ng
• Insurance
15. Projec>ons:
Other
considera>ons
• You'll
need
space
one
day
that
isn't
free
• It
is
illegal
to
hire
someone
and
not
pay
them
• Equity
+
cash
=
total
compensa>on
• As
equity
values
increase,
cash
compensa>on
should
increase
as
the
less
expensive
long-‐run
pay
op>on
(this
means
you
are
WINNING!)
• Research
how
much
things
cost
–
don’t
guess!
• Call
your
iden>fied
suppliers
for
costs,
terms
of
materials
and
development
costs
16. Projec>ons:
final
checks
• Look
for
gradual
(realis>c)
P&L
improvement
over
>me
• EBITDA
excludes
expenses
that
are
not
core
to
a
company’s
opera>ons;
allows
for
comparisons
without
regard
to
capital
structure.
• EBITDA
measures
the
progression
of
the
business
but
cash
flow
is
ul>mately
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
projec>ons:
What’s
the
“ask”?
Financial
projec>ons
need
to
>e
to
the
amount
of
the
raise
– Fundraising
takes
>me,
so
12-‐18
months
of
cash
per
raise
– Iden>fy
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
“>me”
in
mathema>cal
equa>ons…
and
>me
in
projec>ons
is
everything
18. Pitching
Projec>ons:
Rookie
moves
– CTRL+C+P
en>re
excel
model
into
a
slide
– Using
anything
less
than
18-‐point
font
– Li,ering
clipart
from
1995…
or
2013
– Sta>ng
projec>ons
to
the
$.01
– Failing
to
summarize
projec>ons
– Using
ANY
of
the
following
phrases:
• “conserva>vely
es>mated…”
• “at
only
X%
of
the
market…”
• “with
no
compe>>on…”
– Forgexng
to
explain
what
the
amount
you
raise
achieves
– Relying
on
a
short-‐term
exit
at
a
high
mul>ple
19. Pitching
Projec>ons:
Expert
moves
• Know
your
audience
– The
earlier
you
are
in
the
development
of
your
business,
the
more
interested
in
your
assump>ons
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
>ming
of
a
new
hire.
• Don’t
forget
that
headcount
is
a
step-‐func>on
• What
is
B/E
expecta>on
for
a
new
hire?
– Good
metric
for
HC
is
sales/employee
–
these
numbers
are
benchmarked
and
available
with
some
research.