{"id":19950,"date":"2025-01-09T17:36:00","date_gmt":"2025-01-09T17:36:00","guid":{"rendered":"https:\/\/peraltafinancing.com\/angel-investor\/how-investors-look-at-startup-forecasts-essential-insights\/"},"modified":"2025-01-09T17:36:00","modified_gmt":"2025-01-09T17:36:00","slug":"how-investors-look-at-startup-forecasts-essential-insights","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=19950","title":{"rendered":"How Investors Look at Startup Forecasts – Essential Insights"},"content":{"rendered":"


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Investors look at startup forecasts for concepts, not accuracy. When investors look at your projections, they are looking not for just the numbers, but essential insight into the knowledge, experience, and goals of the founders.<\/p>\n

Important: you need to forecast to manage your business. Hard as it is to forecast, it\u2019s much harder to run a business without forecasts. Forecasts become budgets and budgets become spending and you don\u2019t have the luxury of not guessing. You go from guess to truth to revisions to management. <\/p>\n

However, this post isn\u2019t about that. It\u2019s about what investors look for. <\/p>\n

Investors look at startup forecast for insight<\/h3>\n

Here are some examples of the insight investors will take from a startup. Investors look at startup forecasts for what\u2019s beneath the numbers. They answer some very important questions. <\/p>\n

Do the founders understand the business?<\/strong> Do they know what\u2019s realistic? For example, do they show reasonable and believable levels of, say, marketing expenses to sales, and profits to sales? Do they realize they\u2019re going to wait months to get invoices paid? Do they understand the length of the sales cycle, and what web marketing costs? Do they know what a direct sales team costs? Do they understand margins through channels?<\/p>\n

Do the founders understand about investors, exits, and returns? <\/strong>Raw revenue numbers give us a sense of scale and founder\u2019s goals. There\u2019s a big difference between a business trying to grow to $2M in five years and another trying to hit $50M. That\u2019s important not so much for the raw numbers \u2014 many times the $2M one is even more likely to get to $2M than the $50M one \u2014 as for what it tells us about founders.<\/p>\n

Unrealistic projections don\u2019t convince investors to invest; they tip investors off to inexperience<\/strong>. For example, just yesterday I just looked at four business plans projecting 70%, 49%, 48%, and 34% profits to sales in five years. That\u2019s absolutely absurd. Although all four of them show naivete and inexperience, the 34% projection is way better than the 70% projection.<\/p>\n

True story<\/strong>: I was present at a presentation where the founder proclaimed, at the beginning, \u201ceverybody knows financial forecasts are just BS \u2026 so we don\u2019t have one<\/em>.\u201d Every investor in the room stopped listening at that point. None of them was going to touch that deal, ever.<\/p>\n

But there is a silver lining<\/h3>\n

And, finally, a silver lining<\/strong>: Some fellow investors would disagree with me, but I am quite sure that bad financials are not a reason not to invest in a startup that has the more important factors such as a good team, a strong market, some way to differentiate, and ability to scale. I\u2019ve said several times, in group discussions, that bad financials are the easiest flaw to fix. It exposes a gap in the team, and a weakness; but it doesn\u2019t mean rejection. That is, as long as the founders are willing to acknowledge, learn, and fill that gap.<\/p>\n

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