“Why do we ask for financial projections?”  What??!

Time and again you hear investors say that whatever financial projections there were at the start prior to investment with an early stage company, they change greatly after a few months, year, and so on.  So why do we care…?  

Well, the basic things at a high level that I look for in financial projections are:

  • An understanding of the use of expenses
    • When, how and why capital will be used
  • How much will things actually cost
    • Meaning legal is not 10K for a year if you are raising a preferred equity round
  • What is the expected runway?  
    • How much time does this capital raise get you if you have no revenue?  
  • What is the (assumed) metric used to drive your revenue? 
    • Does it make sense? 
    • What are the assumptions for the increase of that metric over time?  
  • Are you raising enough money?  (Bigger question for another post)
It helps greatly to know that time is being taken to plan the use of proceeds for a capital raise and that it is to the benefit of your early stage startup.  It is simple, but constantly under minded or heavily inflated with astronomical revenue.  
Just remember we want to know how you think and in some cases, if you are thinking.  
For all that I mentioned of what I look for – it is all to see how you think.  
Image source: http://br.freepik.com/
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