Many of the international founders that come through Dat Ventures’ program waste time building meticulous financial projections that they believe will impress prospective investors. The reality is that nobody cares (except maybe your parents), at least not for the reasons you think they do.
That’s because there are only two certainties about these types of projections:
- They will be wrong.
2. Every investor knows that they will be wrong.
Unfortunately, many founders aren’t aware of this and so they spend hours building 8,000-cell spreadsheets depicting the tiniest details of their projected revenue streams and expenses. But since this isn’t business school, nobody cares that you’re good at Excel. Do everyone a favor and use a simple format to make sure you’re not making things needlessly complex — I recommend Guy Kawasaki’s Excel Template.
Financial projections do not, in any way, affect an investor’s opinion as to the long term viability of your business. Instead, projections are used by investors to evaluate you, the entrepreneur. This usually goes in 1 of 2 directions:
- You forecast completely unrealistic growth, which will make investors conclude that you are either naive or insane. Investors don’t give money to the naive or the insane.
- You come across as either unfamiliar with your market or unambitious by making your numbers too conservative. This might be worse than appearing naive or insane.
The best you can hope for when building financial forecasts is that you show you have an excellent understanding of your company and the market it’s in, you’ve got a clear vision of where you want the company to go, and have some understanding of what you’ll need to get there.
You’ll also need a firm handle on some important metrics like lifetime value, your cost of customer acquisition, manufacturing/fulfillment costs (if you’re building hardware), etc.
Investors will look to evaluate your thought process and your understanding of the business, not the accuracy of the projections themselves. If you find that an investor is spending a considerable amount of time on the details of your projections (I see this a lot from young business school grads who are trying to break into angel investing) it’s probably an indication that they don’t understand how early stage companies work and that you shouldn’t be taking money from them in the first place.
So keep your financial projections simple, and use the time you save on the actually important things.
About Dat Ventures
Founded in 2014, Dat Ventures delivers a 3-month soft-landing accelerator program for international startups in Boston. Dat Ventures connects founders abroad with local US resources to build teams, adapt businesses, and engage with potential customers and investors. Dat Ventures’ mission is to be the gateway for international startups to enter the United States via Boston, while helping generate an economic and cultural impact in their countries of origin.