Sun, Feb 03, 2013
The dreaded finance slide. The one slide which is made up out of one hundred percent pure fantasy. And yet it seems (and is) so important.
Let’s come clean on this first — before we dig into the details: Everybody knows that whatever you write down on your finance slide is not reality but (in the best case) wishful thinking. That includes your investor.
Simple. The finance slide shows your investor that you understand the fundamentals of your business. That you have a clue. That he can trust you with his money.
So what do you need to know about your finance slide? As so often in life the answer is: it depends. Here’s my personal take.
For starters you want to show a one-year plan which covers month-by-month revenue and costs. Lump costs into broader buckets and don’t fall into the trap of pretended accuracy by showing off precise numbers. Nobody will believe that you really know that your marketing costs will be precisely $6,786 in month 8. You’re much better off eyeballing these numbers. Also don’t present endless lists of minutia details such as your telecommunication costs per month. Show off your business literacy by presenting ballpark numbers which make sense (e.g. salaries should come as fully loaded head counts — not doing this is a strong indicator that you don’t know the fundamentals of running a business).
On the revenue side you want to do a couple of things. First of all explain your business model (this is something you might want to pull out on its own slide). Then give me your assumptions — sometimes it makes sense to work with scenarios (best, base and worst case). And then use this model to validate your revenue assumptions bottom-up: If you say you will have 5,000 customers in month 3 — what does that mean in terms of customer acquisition per day, how does that influence your cost model, etc.
This is probably the most useful part of putting together your financials. It allows you to make an educated guess about your model and will, if done right, feed you tons of information back into your own thinking. Weirdly a lot of entrepreneurs don’t do this — and then fall onto their face when, in a pitch meeting, their savvy investor picks the numbers apart and points out the gapping holes (something I like to do — as it really shows if someone thought hard about their business or if they are only wanna-be entrepreneurs).
And then you do the same for year 2 and 3 — this time on a quarterly basis.
Above all: Do this for yourself, not because you need to do this for your investors. Use this exercise to validate your assumptions, to get a deep understanding of the underlying logic of your business. Your startup will be better off for it.
Wishing you all a wonderful Superbowl-Sunday!
P.S. Have a question regarding pitching or your pitch deck? Send me an email.