Fundraising · Financial statements

How to construct financials projections for investors for a subscriber base startup- up company

Mark Bain

November 25th, 2014

how to construct financials projections for investors for a subscriber base startup- up company with two additional revenue streams. I need help please.
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Kelly McIvor Product Marketer | Mobile Strategist | Opportunity Developer

November 25th, 2014

Hey Mark,
I've modeled many subscription services and find the following to be at the heart of each:
CPA (Cost Per Aquisition) - how much it costs in marketing dollars to get one new customer
Conversion Rate - how many new accounts convert to a paid subscription.
Churn Rate - How many- as a percent - of the previous paid subscribers cancel each period, usually a month. This can range from 2% to 10%, depending on the business. This is also how you calculate the average lifespan of a customer (i.e., 1/churn rate = number of periods in a lifetime)
There are, of course, many other KPI's to track including Lifetime Value, but they aren't particularly unique to a subscription model.


George Giantsopoulos

November 26th, 2014

Kelly is right on.
I will also add, "Identifiable Market" and "Reachable Market".  You need to show the investors that the market size exists and it isn't a figment of your imagination (identifiable market). In addition, you need to show them how you will  market it to them, are they reachable.  Your financial projections will always be derived from these two elements.

Chris Carruth VP/Director. Strategy | Business Development | Operations | Product | Solutions

November 26th, 2014

@Mark-

I've been creating financials for new ventures for almost 20 years, under all types of revenue models and for all types of target markets and products/services. My input:

a) Projections based on industry comparisons will provide a "normative" model..but how "normal" is your start-up? Is there nothing that is unique enough that "normative" still works? If no tweaking is needed then you should start considering how successful you will be with no differentiation from existing solutions.

Sometimes that is the only approach available but be aware that if not tuned to what you are doing it can be considerably "off".

b) With due respect to Marshall, there should be no difference in financials between sources except for the investment vehicle and the associated return/risk. Conservative sources, like banks, will look for different metrics and emphasis but the basics of cash flow are the basics of cash flow - assuming you are not doing something exotic that impacts the Bal Sheet and needs to be explained.

c) The concept of identifiable and reachable markets is right on..as long as they are also tied to the metrics that Kelly highlights. A high churn rate will absolutely kill your business as it means you are having to acquire new users at a much faster rate than a product that has a lower churn rate. If your "reachable" market is XXX users, and you have to get XXXX users aboard to end up with a paying subscriber base sufficient to meet investor ROI and sustain the company, they you are in trouble. 

d) I would also suggest you look pretty thoroughly into competitive products/apps that meet the need and really ask yourself why would people not simply continue to use these? Any funding source will want to be comfortable with your answers.

e) Lastly, I would suggest you get validation,even through discussions/online surveys/networking that your product has appeal, is unique, and provides value to the user..and this should be outside friends and family, and should be done with individuals from your target segment(s).

One more thing regarding modeling. Don't get overwhelmed. Make it as simple as possible but making sure you capture all assumptions that tie to specific numbers. The goal should be that if an investor/bank asks to see your models they can go through the numbers and have minimum questions after having done so. 

Chris

Luis Berga Co-Founder at Music Meets Video

November 25th, 2014

Hi Mark,

I've created several financial projections for startups, most recently for some of the Techstars companies in the Austin program where I was an Associate. Send me a message offline and I'm happy to take a look.

Marshall MSCS Planning, Strategy Operating/Business Model Analysis IT Process Definition, Design, Software Programming, Management

November 25th, 2014

We use a industry comparison projection template and a model to model a break even in 90 days  with minimal funding. The template we is designed to show actual vs projected thus if additional funding is required the track record can compliment results. We do not support Angel or Crowd funding operations in our projections we use the 99% of funding methods used by profitable.companies. The template is designed for small or start up companies that want to reach 1M in the first year. 

Marshall MSCS Planning, Strategy Operating/Business Model Analysis IT Process Definition, Design, Software Programming, Management

November 26th, 2014

Thank you Chris , I see you using my name thank you for the compliments.  I see lots of good things in all of these posts and strongly agree with validation. Market research is important but we think the better research is done with actual potential customers. We see research as a do it profitable action. 

 We believe too much time is spent on guessing. Our standards are particular to successful industry types in stages of worth categories, incomes, expenses, and ratios based on over 20 years of experience.

 We also realize each company is different but have similarities to others. Our experience and industry research shows over 90% of businesses that fail have a non existent, or a poor financial projection plan, or do not adhere to a budget. For that reason these companies operate on a narrow margins of cash and can become desperate.

 Many financial plans I see are based on hockey stick projections of making huge profits that attract VC types. It is 99% more likely that a company will not use VC or Crowd types of funding because of costs, available funds, or funds offered. For that reason we find a conservative approach alongside a good marketing plan work best over product development to build rapid profitability still leaving the hockey stick as a possibility.

 Investors want to see goals met or exceeded and a good plan is the basis for good business.

Mark Bain

December 1st, 2014

Thank you all for responding.

I am currently using the appliaction project hub to construct my projections. Is anyone familiar with this application. Also i am trying to answer the following question. Where could I find the industry metrics that I can use.

1) Average monthly


Ron Sharpp Serial Entrepreneur, Technologist, Chief Security Officer at Praesidium Defense Solutions

December 1st, 2014

I'd like to delete my account, however the link is not working. Please let me know what needs to be be done to resolve this. Thanks