Part 9: Common mistake: unrealistic revenue projections

In our previous posts, we discussed common mistakes that start-ups make in their pitch decks. In this issue, we’re focusing on another common mistake: unrealistic revenue projections.

Let me get right into it. In my view, unless you’re a Series B start-up, you do NOT need a revenue projection in your pitch deck. That’s because you don't have any data to rely on for your revenue projections. That means that your projections are full of assumptions and will turn out wrong in almost all cases. On top, most start-ups will “predict” that they’ll hit $50-250M in revenue in 3-5 years. Investors get cynical at some point because it’s just not going to happen (even if we all want it to).

Sure, you’ll want to have a financial model in your data room in case an investor asks you for it. Experienced investors will primarily ask you for this to do 2 things: first, to test your business acumen. What kind of assumptions have you made? How have you validated them? Second, the financial model, especially the operating and capital expenses (OPEX and CAPEX), can tell investors how you plan to deploy capital. It’s a different perspective on your suggested use of proceeds and how well you’ve thought through what will need to happen next.

If you’re talking to someone that’s asking for financials in your deck, you may be talking to an inexperienced investor, and ask yourself whether you want them on your cap table. It’s like working with a client that has no money: a lot of pain…because their $50 matter 10x more to them than to you.

Now, let’s get back to why you are considering to put projections into your deck in the first place. It’s to get investors excited by the upside potential of your start-up. A much better way of accomplishing this goal is through a case study that talks about “How big this can get?”

This case study is essentially like a scenario analysis. For example, if you’re a B2B SaaS start-up, you could say something like: “If we hit 10,000 customers, our annual revenue will be at $XXXM and, at a 10x revenue multiple our implied valuation would be $XB.”

The key is that you are not projecting, you are stimulating the imagination of your reader. Ideally, you are also using believable numbers to create the scenario. Hitting 10,000 customers is going to be hard, but it has been done before and seems realistic given enough time and money.

Believable case studies beat unrealistic revenue projections any day...and you won't get fired if you fail to hit your projections!

Talk soon,

Rafael

PS: How do we help you? My team and I build pitch decks, review existing decks, and offer pitch simulations. Get in touch if you or someone you know may be interested.

PPS: This mini course is based on our popular “Fundraising & Pitch Deck” newsletter.