Avoid Grossly Overstated Revenue Projections In A Pitch Deck
Outside of in person meetings, a pitch deck is similar to a first impression, a clean snapshot of your company. Decks communicate a company’s values, its market, value proposition, the team, and its future. Entrepreneurs communicate this in a number of ways over a 10-22-page slide deck.
At times, what stands out in a pitch deck are revenue projections, and not necessarily for the reason one would think. Projections will typically cover at least 3-5 years, which inherently includes a level of uncertainty; firmly based on key assumptions an entrepreneur makes. Assumptions that strike me every time I come across them are inflated growth rates, and no customer churn. Typically they manifest in a way like this: Company A reveals they’ll be profitable in the first six months of operations, have $400 Million in recurring revenue by year 4, with a selling price of $1000/per client:
As a result, we get the Hockey Stick:
I understand the motivation behind making a company look worthy of investment, but grossly overselling what a business will generate may have the opposite effect. I don’t want to imply that investors will pass on your company simply for having incorrect projections—in fact, it’s common for entrepreneurs to overstate/understate—but if the assumptions are unrealistically optimistic it may bring your knowledge of the industry into question.
As stated above, a pitch deck may be your first impression, and you’ll want to put your best foot forward when showcasing how you’ll win in your market. Before sending over a deck, or meeting for your actual pitch, please consider the following:
What would have to happen operationally, and market-wise, in order to meet your company’s goal?
While adding new clients, how many customers will be lost in the same time period? You won’t perpetually keep every customer added, I promise.
How many people would you need in X role, to make this goal happen? Does that align with the funding you are seeking?
Does it make sense that you’ll be able to get to $X in this time period, for you industry? Consider information on competitors and/or historical info on leaders in the space.
Whether you have a top-down or bottom-up approach, thinking through the “how” you will get there, and “what” resources are necessary for you to achieve it will serve you well. Be as honest as possible about what you think your business can accomplish with the right resources. This will help you be better aligned with your vision, and understand what type of investment you’d actually need to see it through.
Looking for a helpful starting point? A simple startup budgeting template might be just the thing you need. Check out our recent post on startup budgeting and here’s a free template to get you started.