The WTFs of an Investor: #7 Drafting That Excel Sheet
In 2013/2014 Inventures asked our Managing Partner Michael Schuster to write a series on our experience as a seedstage fund, about stuff that makes us wonder, but not in a good way. This series originally titled “WTFs of a Business Angel” hasn’t lost its truth it seems, so we decided to revisit the content, update and adapt it where necessary and publish it here on our blog (also because inventures.eu sadly is gone from the web). Have fun!
When we started Speedinvest in 2011, we were a startup ourselves. A very well funded startup, but still, we were a team of people who had some experience in building companies and no experience in building a Venture fund. We’re still learning an awful lot, because you can profit tons from other people’s experience, but there is no way around doing things yourself, making mistakes, trying again and again, learning from what you’ve seen so far.
That is the spirit that we like to keep, a positive and pro-founder type of attitude, because the truth is: we love what we’re doing. It’s fun and exciting to meet visionary people, who have drive and enthusiasm to change whatever tiny bit of their world, step by step. However, there are those rare events where we sit across the table in our office and have a facepalm moment. When one of us gets an email from a startup or reads a piece of news about our industry that just makes you go “WTF?”. For your reading pleasure, but also to offer you the opportunity to learn, we open up our treasure chest of awkward moments and give you our top WTFs, of course with all due respect to those contributing to them.
WTF #7: Drafting that Excel sheet
It is a commonplace these days that most Angel investors will never ask you for a full-fledged business plan or any other document detailing the world you live, breathe and thrive in until 2027. Detailing the plan of world domination in utmost clarity almost always serves as self-motivation, rather than as guideline for growing your business. BUT, there are these moments in a process that eventually leads to investment, where the numbers make all the difference. Not that 30-page Word document, as said, but that two-page Excel file with all the necessary metrics.
We need metrics. For some simple reasons: we need to see where you are going with this, how big it is and most importantly, to identify also for us, the important value drivers of the business model. I personally always feel a little childish excitement when a founder sends over their super-secret Excel sheet to share the calculations they have been pondering over the last months. I like this moment. Over the time, I got the impression that there are mainly two types of sheets: one super simple approach that misses most of the important parameters and has been done in an hour or two. The other is the super sophisticated approach, an overly detailed sheet that uses 30 columns, 5 sheets and lots of assumptions to build a business case.
This might be necessary for some business models that are truly complex in their nature, but for most, calculating inflation rates until 2017 makes no difference in your EBIT, turnover or valuation at all. For some reason I haven’t figured out yet, most of the templates that are offered are the latter. Screw that. Really. If I have to print your sheet that spans a couple of pages only to see your basic assumptions, you are modeling too much. After all, these are just assumptions, a mental model that can communicate what is possible, not what will happen.
You and we, we need these models. Because they are a basis for a discussion, because they set the scene, because we can challenge each other based on those assumptions. The best discussions we had with founders were based on a reasonably complex Excel file with their business model on a page, where we would play around together, model in cases and data points, getting a feeling for the business we are looking at. Your spreadsheet is nothing that generates revenue or clients, or hires good employees. But it is your view of the world you will be living, breathing and thriving in the next couple of years.
