What matters in early stage pro formas
As someone who produces forecasts all the time, I have a lot of opinions on what works and does not. Well done forecasts have lots of info and lots of details. But, when you boil it all down, here are the three things that matter most to potential investors:
Do you know what you’re talking about?
Assumptions are key: Have you clearly shown all key assumptions regarding cost drivers, price points, conversion rates, etc? If I ask people in the industry will they confirm these assumptions? Have you tested them yourself – especially around pricing?
Is this exciting enough?
What are your targets? What do you plan to do with this money? Is it enough to either get you to cash flow positive or have enough milestones to raise follow on money at a higher valuation?
You need to strike the right balance between getting investors excited while setting targets that are credible and attainable.
Are you asking for enough money?
Have you fully thought through all the costs that are needed to achieve your milestones? Have you factored in cushions for surprise expenses and delays? Bottom line – will you have enough runway to get to the next big milestone (cashflow positive or follow on $)?
I think if an investor feels good about these three key questions your probability of closing the investment goes up significantly.
Great comments Barry. Your points are bang on. Investors do read them (at least the junior ones). The magic lies in the assumptions and in building them around how your business actually works. i.e. if you're a web business – how will you drive visitors? Bottom up? Mix of organic vs. paid? Referrals? Conversion rates? etc, etc. Not sure if you saw this golden oldie – another post on building pro formas ” target=”_blank”>http://www.startupcfo.ca/2008/04/build-pro-formas...
Great comments Barry. Your points are bang on. Investors do read them (at least the junior ones). The magic lies in the assumptions and in building them around how your business actually works. i.e. if you're a web business – how will you drive visitors? Bottom up? Mix of organic vs. paid? Referrals? Conversion rates? etc, etc. Not sure if you saw this golden oldie – another post on building pro formas ” target=”_blank”>http://www.startupcfo.ca/2008/04/build-pro-formas...
Hi Mark, As a three time entrepreneur with more false starts than I want to talk about, I’ve spent countless hours developing, tweaking and vetting pro formas — even more so as a long-time product management professional. Nevertheless, I’d like to point out my frustrations with pro forma statements. 1. They can take forever — and never seem to be quite finished. 2. Sometimes I think (reads I know) I’m the only one that reads them. 3. Bankers are only interested in D/E ratios, cash flow and personal guarantees. 4. Investors aren’t necessarily smarter — but they do have more cash. 5. Pro formas almost always ground me (reality can be humbling). 6. I’m still waiting for the day I outrageously outperform
. Thanks for the great posts. Best Success, B. Product Management Professional & Founder, Quantum Whisper ” target=”_blank”>http://www.quantumwhisper.com
Hi Mark, As a three time entrepreneur with more false starts than I want to talk about, I’ve spent countless hours developing, tweaking and vetting pro formas — even more so as a long-time product management professional. Nevertheless, I’d like to point out my frustrations with pro forma statements. 1. They can take forever — and never seem to be quite finished. 2. Sometimes I think (reads I know) I’m the only one that reads them. 3. Bankers are only interested in D/E ratios, cash flow and personal guarantees. 4. Investors aren’t necessarily smarter — but they do have more cash. 5. Pro formas almost always ground me (reality can be humbling). 6. I’m still waiting for the day I outrageously outperform
. Thanks for the great posts. Best Success, B. Product Management Professional & Founder, Quantum Whisper ” target=”_blank”>http://www.quantumwhisper.com