Executive Compensation · Financial projections

How detailed should financials be in a pitch deck and okay to include founders compensation in first round?

Michael Rittersbacher Co-Founder/CEO, Ex Tech/Social Media/Consumer Products/Global Brands

June 1st, 2020

Paul Garcia marketing exec & business advisor

June 7th, 2020

Financials should not be detailed in a pitch because that's both private information and too much to ask someone to consume too early. You want to show high-level numbers like projected three year revenue and expenses, break-even point, and highlight what variables affect those estimates. You never want to talk about founder compensation because the founders get compensated LAST, after the utilities, after the rent, after the suppliers, after the other employees, after everything else. By pointing to your personal compensation, you show that you're selfish and not going to do whatever it takes to be successful.

Always be prepared with detailed financials for questions that are prompted by your high-level numbers, but never make details part of a pitch. Potential investors are going to want to know how you arrive at the numbers you show, and you had better have precise and credible answers ready for every one of those prompts.

You may consider showing financial information about what your company looks like without the investment and what is enabled with the investment. Assume that you will not get any investment and be prepared to operate without it. If you can't, then you don't have a good plan. Demonstrating the benefit of an investment is much better than saying you can't operate without one. It means you didn't plan for the likely reality of no investment and are as a result, a higher risk.

Investors want to know everything you've already done to reduce the risk to their money.

Richard Schwabe Looking for CTO Roles

June 8th, 2020

Let's think about it.... What can you actually predict? Do you know the future better than anyone else?

Investors, no matter what type, know that you will face problems left, right and center and that it will affect everything. If you go too high you look unrealistic and very naive, when you go too low, you might seem not very profitable, naive and unrealistic.

Keep it simple and stupid. What are your costs per month? What runway do you need? 9/12/18 month? What do you think would be a realistically very good revenue and what would be a low ball, but not 0, for that time. Take something in between there. Maybe 50%, maybe 45%?

Show you understand the market, look at the revenues of similar startups and industry leaders, the hidden champions and fully understand the pricing of all of these. That is more important than arguing: The market is 3bn and not 4bn. The revenue is expected to be 2m or 10m in the first x years.

You will run into problems that cost money that you didn't think of before. Potential clients actually don't convert to paying customers. Your biggest customer turns broke because of unforeseen events (covid, earthquake, terrorist attack, tsunami, financial crisis, whatever reason).

For some things you can see the risk is very low, for some it might be high. Try to find a middle ground, but do not stress it too much. The financial site is not put in stone!

Point is, you need to be able to back it up and reason it, when asked, but it is more important to stress other parts in your pitch deck.

I wish you best of luck and hope you are successful with your pitch deck.

Henry Marcucella Entrepreneur, Web Developer

June 5th, 2020

Accurately predict the future. Yes you're trying to build a real business and in a real business everyone has to get paid. Don't go overboard. Show you're thrifty.

Dane Madsen Organizational and Operational Strategy Consultant

June 8th, 2020

The most important message of a financial slide - and @Paul Garcia is absolutely right; high level only in a pitch deck - is how you thought through the numbers. Knowing the market size, the buying points, and scaling expectations is important. Nobody will make an investment based on a pitch deck. The best case outcome from that deck is "tell us more".

However, if your projections are "too low" - every investor expects you to be unrealistic because of your convictions of your solution being different and important - you will be seen as either unsure, uneducated about the space, or have low expectations of your success. Investors will always discount your numbers, so make sure you have achievable (in a fully funded, perfect world) forecasts. Nobody invests in a company that the founders do not think can change the space. Often, qualified enthusiasm is what they are investing in.

A tool I recommend to founders in your position - building a story/deck - is Guy Kawasaki's rules of a presentation (not for a first pitch so yours would be shorter) where he makes the point an investor will want to know not only your forecasts, but the KPIs that drive them (number of installations, churn, annual revenues per user (especially if you are a SaaS model) and anticipated support costs.

Andy Freeman Product Management and ... - Looking for new opportunities

June 9th, 2020

One of the things that you want to get across with a pitch is that you understand the business and where it will go, not just the product. Part of that is on the financials slide but other parts may be in other places. For example, CAC is often elsewhere, mostly because most financials slides are both too cluttered and incomplete.

I love decks with the relevant equations (together with the constants) in addition to the hockey-stick graph. That all fits on one all on one page and those equations and constants are what makes or breaks your business. If they're in the deck, we can talk about them instead of spending time getting them from you.

BTW: it's a red flag if your answer to "What's the CAC?" is "We've spent no money on marketing." You may have enough customers now without spending money on CA, but if you're growing, you eventually will have to pay to acquire customers and CAC can be the difference between a company that makes it and one that stalls out.

As to "founders' compensation", are you asking how much investors are willing to let you take out of the business? Assuming that you are...

There are two ways to look at it, but the TL;DR is the best numbers are negative but zero is acceptable. If you're planning to spend investment money on your salary, put that early in the deck so investors can bail out quickly.

[1] If you want to be paid as if you were an employee at Big-Co, go be an employee at Big-Co.

[2] Investors have choices. So, let's look at two plans for your company. The terms (amount raised, valuation, etc.) are the same but in plan A, founders are getting salaries and you're hiring two employees and in plan B, founders aren't getting anything and you're hiring three-four employees. Which plan would you invest in?

You may be thinking "but I can't live on $0". That may be, but you're competing for investment with founders who can.

Scott Miller Have a working business application. Looking for co-founders.

June 9th, 2020

Investors will want to minimize their risks. One major risk is a key Founder leaving the venture for pretty much any reason. If a Founder's ability to support his person/family is compromised, that Founder's contribution and participation will be compromised.

I cannot speak to whether or not compensation should be included in the first round. But this type of a situation needs to be accounted for in some manner, and if the only way to account for it is to draw a salary, then so be it.