1 00:00:07,490 --> 00:00:16,370 I'm just going to show you three examples of how people actually present their financial projections and just comment on it. 2 00:00:16,370 --> 00:00:20,420 Because practically what I've noticed is that when people present the financial projections, 3 00:00:20,810 --> 00:00:24,890 they get all sorts of flak from investors for not doing the right thing. 4 00:00:24,920 --> 00:00:31,400 Now, whatever you do, you're never going to get it perfect. But some of the presentation techniques might be useful. 5 00:00:32,060 --> 00:00:37,700 So the first one is how not to do it. 6 00:00:39,240 --> 00:00:46,049 Financial projections. So what's wrong with you know, this is about a slide with financial projections. 7 00:00:46,050 --> 00:00:51,810 There's there's a ton of information on this slide. The second is false precision. 8 00:00:51,990 --> 00:00:56,970 All of these numbers don't mean anything. They've they've are the precise and they're hard to read. 9 00:00:57,660 --> 00:01:01,290 And then the third thing is, I can't really see anything. 10 00:01:02,460 --> 00:01:04,320 You know, the colour scheme is awful obviously, 11 00:01:04,620 --> 00:01:12,660 but all I know is that there's an entrepreneur who is in deep trouble for two or three years and thinks that they're going to get out of it. 12 00:01:13,410 --> 00:01:17,729 Not looking good at operating stacks. 13 00:01:17,730 --> 00:01:20,850 This is the operating Sachs I didn't get a chance to talk about in detail, 14 00:01:20,850 --> 00:01:27,750 but basically an operating stack says take my revenue and now match that against all of my costs. 15 00:01:28,050 --> 00:01:34,110 How much of my spending on R&D, on marketing, on say, admin administration? 16 00:01:35,010 --> 00:01:38,010 This is an example of an operating stack. 17 00:01:38,010 --> 00:01:40,469 So this is great. The entrepreneur went through the trouble. 18 00:01:40,470 --> 00:01:46,500 It's a very informative graph because I can basically see where does the money go relative to where the money is coming from. 19 00:01:46,860 --> 00:01:51,750 Great idea. So I love the fact that they put an operating stack, they've projected it out. 20 00:01:52,320 --> 00:01:57,270 I also noticed this is a great business because it spends 40% as a tech business, in this case, 21 00:01:57,510 --> 00:02:05,160 40% of its R&D initially, 40% of its money on R&D, and it shrinks down to 10% and. 22 00:02:06,780 --> 00:02:11,160 Basically you say, whoa, this is a great business. They're reducing their costs dramatically. 23 00:02:11,760 --> 00:02:20,250 It's basically impossible. This is a sure giveaway that these people have just assumed that their costs are constant and their revenue is growing. 24 00:02:20,700 --> 00:02:27,480 And if you assume that your revenue is growing and you're able to get all of that revenue at a constant cause, then you get a graph like that. 25 00:02:27,660 --> 00:02:30,810 As an investor, I will immediately say, forget it. 26 00:02:31,320 --> 00:02:34,500 That they don't have a realistic cost model in their business. 27 00:02:34,510 --> 00:02:41,910 There's no way that a tech company can live with less than 10% of their revenue spend on R&D just doesn't exist. 28 00:02:42,810 --> 00:02:46,950 And so those were examples of how not to do it. The next one, I think, is reasonable. 29 00:02:47,600 --> 00:02:50,630 And they begin by stating their assumptions. 30 00:02:50,640 --> 00:02:54,930 I really like that because it will give me some idea, oh, you know, 31 00:02:55,140 --> 00:03:04,140 I have some premium package and I've got some unit costs that because we don't even know what this business is, it doesn't matter. 32 00:03:04,350 --> 00:03:10,500 The fact is they've stated what it is that they're selling, how much it costs them. 33 00:03:10,980 --> 00:03:19,320 So I know. And then they say, okay, the unit gross margin is 40% before showing me any financial projections of income statement. 34 00:03:19,530 --> 00:03:23,420 They're actually telling me the drivers of what's driving the business. 35 00:03:23,430 --> 00:03:29,710 I really like that. I think that's a good start. They go on, they state very explicitly. 36 00:03:29,740 --> 00:03:34,020 Here are a bunch of assumptions I'm going to make to get to my financial projections. 37 00:03:34,030 --> 00:03:37,550 I am going to assume that my inventory is 10%. 38 00:03:37,570 --> 00:03:40,730 I'm going to assume that I have quarterly software updates. 39 00:03:40,750 --> 00:03:45,550 I'm going to assume that 50% of the people will buy the premium package. 40 00:03:45,940 --> 00:03:52,540 Just stating the assumptions makes it very clear for people to know what went inside the magic of these financial projections. 41 00:03:54,280 --> 00:03:57,459 They're stating a profit and loss. So that's fine. 42 00:03:57,460 --> 00:04:00,460 Fairly standard. Not easy to read, but not too bad. 43 00:04:00,880 --> 00:04:04,990 And then we're getting some kind of revenue projections. They always look like a hockey stick. 44 00:04:05,560 --> 00:04:10,780 This is not you know, this is a universal truth, but it's useful, Dave, giving some idea. 45 00:04:11,020 --> 00:04:14,139 Look, at this point in time, we're going to get some seed money. 46 00:04:14,140 --> 00:04:18,490 This is one. We're going to need some round one money. 47 00:04:18,490 --> 00:04:24,340 At this point, we think our investors are going to get some payback. So it's a fairly useful, fairly useful graph here. 48 00:04:24,340 --> 00:04:28,780 You've got reasonable operating stacks where you can see cost scaling. 49 00:04:29,110 --> 00:04:33,610 And that's a you know, it's a story you look at as a provides a lot of information and is credible. 50 00:04:35,240 --> 00:04:41,840 Also very short. I'm the third one. I'm just going to give you an example of a longer presentation and the kinds of detail. 51 00:04:41,840 --> 00:04:48,590 Some of them are overkill, but some of them are very useful if you have the time in front of your investors. 52 00:04:49,250 --> 00:04:55,100 So we're going to start here with some revenues, some details on market penetration. 53 00:04:55,100 --> 00:04:59,059 Why not related? Basically sort of a top down, bottom up logic. 54 00:04:59,060 --> 00:05:02,180 And I'm going to show people what market shares do I have. 55 00:05:02,540 --> 00:05:06,990 I quite like that. I'm going to have a strategy. 56 00:05:07,020 --> 00:05:10,350 How am I going to go to market? Very detailed. 57 00:05:10,740 --> 00:05:15,140 But it says, whoa, this person is really thought about in the financial projections. 58 00:05:15,150 --> 00:05:18,310 I'm going to have an headcount that is thought through. 59 00:05:18,330 --> 00:05:22,960 I'm going to say what I'm going to do in my business in terms of developing the product. 60 00:05:23,720 --> 00:05:26,760 I'm going to talk about the software. I'm going to talk about the hardware. 61 00:05:26,970 --> 00:05:29,820 So this has nothing to do with financial projections, really. 62 00:05:30,060 --> 00:05:36,150 This is telling the people, this is what my business will look like and that's the basis of my financial projections. 63 00:05:36,840 --> 00:05:40,820 I'm going to state my assumptions similar to what we had in the previous one. 64 00:05:41,800 --> 00:05:47,920 I am then going to show you of my financial projections. These ones have all the fancy slides that build, so it's kind of fun. 65 00:05:48,130 --> 00:05:54,940 By the way, the presentation is it can really slow you down if you have every slide building and you want to go backwards and forwards you lost. 66 00:05:55,360 --> 00:06:00,970 So I actually don't like the building too much, but here you've got some standard financial projections. 67 00:06:03,570 --> 00:06:07,560 You've got your operating stacks there, you know, useful. 68 00:06:07,950 --> 00:06:13,770 You would. This presentation would allow you to have a lot of time in explaining where all of this is coming from. 69 00:06:14,400 --> 00:06:23,790 This is a really cool graph. I think what we're doing here is now we're explaining the cash flows of the company and we're explaining, 70 00:06:23,790 --> 00:06:27,360 look, we're looking for 1.5 million in a series, a financing. 71 00:06:27,760 --> 00:06:33,300 And at the burn rate and things that I've already shown you, I've talked about this earlier in my presentation. 72 00:06:33,660 --> 00:06:41,399 Now you can relate it. Look, in order to go for the Alpha stage, I need $1.5 million and that's going to decrease me at this point. 73 00:06:41,400 --> 00:06:48,540 I need to raise a series B, I need to raise $5 million because I'm going into beta and I'm going to start my distributor. 74 00:06:48,900 --> 00:06:56,170 So I am linking very clearly my financing need to the underlying business projection. 75 00:06:56,580 --> 00:07:03,600 This is a mirror where at the top we're mirroring what's happening at the bottom. 76 00:07:03,990 --> 00:07:10,590 And so it's a very powerful I think it's a very powerful slide of explaining to people why it is that you need money, 77 00:07:10,830 --> 00:07:14,730 which is a very simple question that every investor would like to have a clear answer to. 78 00:07:17,140 --> 00:07:18,580 Thank you. Just in time.