This is an anonymous post from an Elpha member.

[Financial projections for pre-seed VCs]

anonymous·Dec 08, 2019

We have a huge market size (tens of billions to hundreds of billions), and we do want to win our space. We also have clear paths to monetization, that we're very familiar with because we are industry veterans. Our most intuitive growth plan shows fairly early profitability, and potential to reach 30M+ revenue using a small seed round alone. But, just because there's potential for us to grow to just a few hundred million & exit with that, it doesn't mean we're not eager for future rounds to try to grow even faster, and even bigger...we want to be a multi-billion, not a multi-million, dollar company, and we want to dominate our fairly nascent space. Should we just be more ambitious in our growth plans (increase ad-spend and reduce prices) in our financial projections to make it easy for VCs to see how we would use later rounds? I worry they'll see our projections in their current state, and assume that just because we could exit sooner and smaller, that we would just give up and do that, without raising future rounds from them. But, we only did our projections this way to show that our business model is sustainable and real (e.g. not WeWork or Uber or other completely non-monetizeable models). And also because we will consider a small angel round before the VC round, and some angels like to see the earlier profitability pathways. Alternative question: Who are the VCs who can see projections of early profitability and sustainability, and not immediately assume that we want a quick, small exit?

Ana·Dec 08, 2019

> Should we just be more ambitious in our growth plans (increase ad-spend and reduce prices) in our financial projections to make it easy for VCs to see how we would use later rounds? Are you pre-revenue? What is your business? How price sensitive is the market? How's the CAC compared to your peers? Do you have good LTV/CAC and how does this get affected? Are you dealing with SV/NYC vs Midwest/European firms?Bear in mind that in general, you can't improve gross margins with scale in SaaS (see more https://twosigmaventures.com/blog/article/why-gross-margins-matter/).If you do increase the ad spend, you start getting questions and doubts around bringing down the CAC in the future especially if not justified with stickiness (high LTV). The problem (or my problem) with ad spend is there's a point at which customers acquired vs the cost stops being correlated.The only advice I can provide at this point is to test the model with a couple of firms in your top 50 or top 100 (stay away from top 20), get feedback.

anonymous·Dec 08, 2019

Thanks! That's great strategy to just test how our non-top-20 VC choices react to various versions of the projections, and to think about the fact that SV VCs (the ones we were targeting because we live here) might have a different perspective than midwestern ones, which we are open to. We are pre-revenue, and still building. The CAC in our projections is based on standard CACs in our industry, & our prices are slightly lower than what our target consumers are already used to. In our industry, the CAC is roughly proportional to price, so if we lower the price, it's fairly predictable that CAC will also decrease. Thanks for helping me think through this!

Ana·Dec 09, 2019

Oh you're pre-revenue. Then don't sweat it at all. At this stage VCs or angels will mostly look at the cost side of things, i.e what you spend on and how much you spend to see how you'll use the money. The revenue side is nice to have but don't go into too much details as those are never reflecting the reality. It will be more relevant at your seed.

anonymous·Dec 09, 2019

awesome thanks!