Business plan · CFO

Need advice on financial plan for Series A pitch

Richard Pridham Investor, President & CEO at Retina Labs

Last updated on June 13th, 2017

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Too many founders wing it when it comes to financials; they have no idea how to explain them to investors. In this course, we’ll teach you how to build a basic financial model; read financial statements; and understand cash flow, balance sheets, and income statements.

Thomas Kaled Business Development Consultant @ thomas.kaled@gmail.com

September 9th, 2016

Your projections should be based on market penetration/capture...i.e. how much of the market you will obtain in your venture. If for instance you know there are 529,000 cases of macular degeneration per annum (US) and you project to own 3% of the market you know that to be 15K cases and if each case has a value of $1000 to your venture your gross sales will be $15 Million. Now your task is to convince the VC how you can capture that percentage (or whatever % you propose to capture)..

Laura Oliphant Business Development and Venture Capital Professional

September 9th, 2016

You should have a comprehensive, bottoms up 5 year P&L, balance sheet, and cash flow model.  Yes, it's tedious, and I can assure you that it will be overly optimistic, but as a vc, I know that you've done some homework if it exists.

Thomas Kaled Business Development Consultant @ thomas.kaled@gmail.com

September 9th, 2016

I am assuming you selected the Pitch Series specifically? Your business plan is a hypothesis and whether you prove it inductively or deductively in the Pitch is moot. Regardless of your line of reasoning it is requisite that you provide the proof in a short slide series (probably no more than 20-40 in Series A).. Although a detailed plan will be required, Series A is generally considered an Apéritif if I may use that analogy and if you spend a great deal of time describing every proposed course thereafter, it's proper pairings, your rationale for them, the historical rationale, the nutritional value of each and the Digestif, my guess is you will lose your audience.

I have read that those who have authored books often write the Preface after the entire book hence the Series A Pitch, like a Preface, will need to be grounded in fact and detail which follows in Series B. and thereafter. 

However rather than provide a 'point-counterpoint ad ad nauseum' why don't I just refer you to what other experts have said on the subject responsive to the scenario you provided:

http://www.reportally.com/investor-pitch-deck-series

http://bestpitchdecks.com/

http://www.slideshare.net/DanielleMorrill/mattermark-2nd-final-series-a-deck

http://www.securedocs.com/blog/how-to-make-the-perfect-series-a-pitch-presentation-deck


Rob G

September 9th, 2016

Richard, build your financial model to serve you and our team not an investor pitch.  You have to be confident in the numbers first - no point in fooling yourself. With respect, i disagree with Thomas K. i would not build a top down model "if the market is 60 gazillion $$ an we capture 10% then we'll have 6 gazillion in revenue and valuation of 100 gazillion".  Build your model from the bottom up: i.e. "how many sales of x, y and z products/services (users/customers) can i realistically achieve in y timeframe with z resources?  how much will those resources cost me? How fast can i realistically locate, recruit, hire, train, etc. the personnel necessary to build, sell, market, count the beans, etc. for this number of widgets/customers/users?  The numbers have to make sense to me first and foremost, no happy ears, no BS - do these numbers make sense to me and my team? I use the summary pages in my model to recruit personnel.  they can see all the assumptions and the results and understand that we've done our homework.  It's a powerful recruiting tool.  "Can i realistically recruit and on-board 2 new sales people in month 2 and how much can they realistically achieve in months 3, 4, 5... ?"  If i bring on another developer and an inside sales person in month 5 how does that affect our burn rate and cash balance?   I start with product (development/engineers) and sales first and the resources those people need and then add bodies in logical progression moving forward - as what point will i need someone other than me to manage the sales team?  When do we bring on an inside sales team? how much time for them to ramp up?  What is my recruiting expense in the first 6 months?  I do monthly for the first 12 months, quarterly in yr 2 and yearly for 3 and 4.  Build a big as* spreadsheet with tabs for key inputs - sales, personnel (who and when), personnel costs (salaries, benefits), engineering, marketing, etc.  My model has 35 tabs including market analysis data, potential prospects, competitors and competitive analysis, etc.  All in one place.  It's my bible.  Summary tabs for a balance sheet, income statement, personnel plan, etc.  Now you can do what-if modeling to test your various assumptions and do a sanity check when some input changes.  Test boundary cases.  "what happens if i add a second sales person in month 3 rather than month 5?"  Once the numbers make sense to you, you can present the data in the summary pages in your pitch and you have all the detail to back it up and all the inputs needed if someone challenges an assumption.  You need to details to run your business.  Investors mostly want to know how you think, what assumptions you've made and and based on those assumptions do the numbers sound sane? that's my $0.02. 

Simone CPA Cannabis CPA and Management Consult

September 9th, 2016

Hey there,

1.I would do 3 years if you know your pricing is really not going to fluctuate and there have been established trends.

2. As a CPA, I go into a lot of detail to really build the proformas.. We wouldn't show this to investors in the actual PL (for example tradeshows would roll up into a selling expense..)

3. I think balance sheets are helpful with the pro-formas.

4. Congrats on the market opportunity. Adding this in the pitch deck would suffice in my opinion.


Martin Omansky Independent Venture Capital & Private Equity Professional

September 9th, 2016

Investors like us look at numbers in orders of magnitude. Details and precision are not necessary, and also violate the laws of nature. Make sure you can effectively y defend your numbers and assumptions. A good CFO will generate appropriate financial projections. Satisfy yourself that your expenses are realistic and conservative. Also be realistic about your ramp-up period and expected market share. And yes you are over-thinking this. Sent from my iPhone

Nevine Gulamhusein Consultant, HR Resource Management Support at The World Bank

September 9th, 2016

Hi Richard, Having been involved in a similar Education opportunity, I agree: 1. 3 years detailed with revenues and expenses for years 4 and 5 should suffice but have details available if asked. Longer forecasts are normally requested because of the length of research and development time frames. Do not forget to outline and include your plan of expansion 2. Expenses - should be fairly detailed in terms of Payroll and benefits, consulting, rental (space and equipment) interest and insurance costs, entertainment / marketing, Auditing, banking fees (line of credit charges), lobbying efforts if any. These are primarily major expenses. These can be estimates with increasing variances over the 5 years 3. Target modelling. Once you have a successful model, this can be emulated or slightly modified as you expand. But you should have in mind the areas you want to penetrate and its community. 4. Deferred revenues in advance of service delivery - Hold these in an escrow account. These only get taken into revenue once the service is completed; the balance gets recorded as work in progress (because it is your potential work load). This will keep it simple for tax purposes. If you need help with putting this together on a spreadsheet (macros and pivot tables) I could help you with this. Best regards and good luck, Nevine Gulamhusein-Rahemtulla, M.B.A, PhD

Richard Pridham Investor, President & CEO at Retina Labs

September 10th, 2016

Rob Groper: I'm with you Rob. I too am not a fan of the top down / market penetration approach. The real world never never seems to work out this way. Bottom up is the way to go for sure. I have all the market stats to do this.

I think you and others have answered my questions. It looks like I'm going to need a 5 year FP. I'll do 3-years' month to month and year 4 and 5 will be annuals totals with assumptions built in for revenue growth, expense indexing, etc... I think the core of the FP is going to be the revenue modeling. This is where I need to spend most of my effort. The institutional segment is really straight forward. It's the other markets (with the biggest potential) that are trickier as we haven't thought through the entire spectrum of business models). But nonetheless, I think I have a pretty good hunch as to what's going to work.

Don Ross: You are correct that this company has been solely focused on the Canadian market prior to my investment and assumption of its leadership. There are opportunities in Canada but the big opportunity is in the US. There are over 40M diabetics in the US and that number is growing. If you are a diabetic, you are prone to many vascular health issues, including eye diseases. All diabetics should get screened annually for diabetic retinopathy but less than 50% actually do so. Using a top down approach (I won't but just for argument's sake), we get 5% of the people who don't get screened. That means 1M screenings per year. At $50/screen, that's $50M right there. There's an even bigger market going after the gen pop (non diabetics) for early detection of other conditions using the exact same approach. Many people don't realize that your eyes are a window into your body and can reveal and predict all kinds of health conditions (even HIV believe it or not).

The "for profit" US healthcare really fits our model nicely. Telehealth reimbursement is now covered in 46 states (soon to be 50) and by all insurers whereas it's not uniformly covered in Canada. Everything takes longer in Canada and the market size is a fraction of the US. Prevention, early detection and treatment are big incentives for insurers. We have some key team members coming on board in the US so we're in good shape to hit the ground running.


Abhishek Krishna 14 yrs+ Business Planning Expert/ Corporate Finance / M&A

September 10th, 2016

Hi Richard. 
IMO you need a 3/4 yr BS, CF and P/L statement that includes Assumptions for Revenues and Expenses. Revenue wise you will need to project customers (Hospitals, Opthalmalogists, etc) and amount earned per customer by each state/ country that you wish to target. So as per your strategy/ roadmap you will need to show detailed Sales & Expenses. In case you are interested we can do the Financial Model / Plan for you. We have expertise to do this for Venture funding purposes. 

Martin Omansky Independent Venture Capital & Private Equity Professional

September 10th, 2016

Well said. Unfortunately, most entrepreneurs have neither the patience nor the skills to do what you suggest. I urge all founders to get help with these matters. Sent from my iPhone