Often, entrepreneurs overlook the importance of their financials and metrics in their pitch deck. Yet, there are a number of financials and metrics investors want to see that you must include to increase your chances of fundraising.
Are you preparing your pitch deck but you’re not sure which financials and metrics you should include in your pitch deck? Read on.
Why you should include your financial plan in your pitch deck
Investors are financial-savvy individuals who dissect your pitch deck to highlight potential risks and growth opportunities.
Remember: VCs and angel investors fund startups to make a profit.
Therefore, your financial plan needs to be attractive yet also realistic so investors will be keen to take risks and put money on the table, so they can expect to make a return when they sell their stake in 5 to 10 years.
Along with the qualitative side of your pitch deck (product, team, market, etc.) investors will focus on your financial plan to run their return analyses. As such, you must include key financials and metrics in your pitch deck so they can better assess whether your startup is worth investing in (or not).
They focus will vary depending on the stage you are in. Whilst they usually focus on growth for early stage startups, their focus shift to profitability for later stage businesses.
Building a strong plan shows investors 2 very important things: you understand your business, and your plan is based on verified and credible assumptions, giving investors more confidence to meet their return expectations.
For more information around why a solid financial plan will dramatically increases your chances of raising, see our article here.
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Where you should include your metrics
The financials in your pitch deck should be included at the end of your pitch deck (see here the 10-slides pitch deck structure Guy Kawasaki recommends to follow). Indeed, your financial projections are the result of the successful execution of your plan for which you are asking for funding.
Your product might be a great one and you might have the best team to execute your plan, yet if your business is not viable (read profitable) in a foreseeable future, no one will ever accept to fund it. That’s why you should first present your startup idea, product and team, dive into the market and competitor analysis, before you present your numbers.
Early traction, if any, should justify your projections
If you already have some traction, revenues or not, you must include it.
Unless you have a top-notch track record, already successfully launched and built a product or sold your own business in the past, it will be more challenging to get funding if you do not have any traction at all. Investors make investments, not bets. This is all the more true with venture capital funds.
That’s why you will dramatically increases your chances of fundraising if you can show investors you already have traction. Traction can either be metrics (users, signups, etc.) or financials (revenues). The more data points you have, the better.
In your pitch deck, the slide on traction should be included before the slide(s) for your financial projections. All together, they read:
- Traction slide: as of today, we have gotten here
- Financial projections slide: early traction makes us confident we can go there
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Should you present 3 or 5-year forecasts?
The number of years you should forecast depends on the type of investors you are pitching, and indirectly on the stage your business is (early or later stage startup).
As a rule of thumb, the longer the projected period the better. It shows investors you have not just thought about the near future, but also your long term plan.
That being said, we all know startups have an inherent high level of risk, and as such their projections are likely not to be fully accurate. This is especially true for early stage businesses, and the outer years (years 3 to 5).
For that reason, early stage startups should focus on 3-year forecasts. Especially if you are pre-revenues and raising for Seed or pre-Seed funding, investors who will accept to fund your business will focus mostly on the near-term as they are taking a higher risk to invest early on. Still, there is no harm in preparing 5-year forecasts instead, as some investors might ask for it.
In comparison, later stage startups (post revenues, Series A or later) must include a 5-year financial model instead, as they already have decent financial and metrics, and as such, their financial projections are based on verified assumptions and therefore more reliable (so is the future).
Start with your key financials
Whether you are fundraising for a tech startup or a retail business, you will need to give a snapshot of your key financials over 3 to 5 years: your Revenues, EBITDA and Cash flow.
Note: EBITDA is a very common metric all investors use, across many industries, to assess the profitability of a business. For more information around what EBITDA is and how it is calculated, see an article here.
Cash flow should not be confused with cash balance. The first is the amount of cash your business generate over a given period, after all expenses and capital expenditures have been incurred. Cash balance instead is the amount of cash you have in the bank at a given time.
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Dive into the metrics
Once you have given investors a clear picture of your financials, you should now dive into your metrics and unit economics of your business.
Indeed, financials do not give a full picture of how well you are performing: using the example above, you might have 22% EBITDA margin by 2023 but this can very well represent a poor conversion rate for instance (you could do better).
Unlike your key financials, the type of metrics you should show depends on the type of business. A few example include:
- Number of users / customers / accounts
- Conversion rate(s)
- Churn / Retention rate
- Average Revenue per User (ARPU)
- Customer Acquisition Costs (CAC)
- Customer Lifetime Value (LTV)
See below an example of metrics an e-commerce business could include for its fundraising:
You have prepared your financial model, pitch deck and are ready to pitch investors? Read our article here on how to best pitch your financial plan and the common mistakes to avoid.