If you’re fundraising during the very early formation of your company, your ability to predict the future will be very difficult. Of course, you can imagine and dream what might happen. But many agree that it’s a waste of time to project your financials 3+ years into the future. I’ve already written that not spending the time to create a traditional business plan doesn’t mean you shouldn’t plan (see related article titled ‘Don’t Waste Time on a Business Plan’ Doesn’t Mean Don’t Plan). But what do you do when faced with an investor prospect that is specifically looking for predictability? You can either drop them from your list (at times the right thing to do) or you can share the following things with them in hopes they will serve as a substitute.
Market Size & Related Attributes
Let others do the projections for you. In this case, share data from industry and financial analysts. Then, specifically relate your company, solution, approach, and vision to the data. You should understand your market size (both TAM and SAM) and should make sure to include various interesting attributes about your market that don’t specifically relate to size.
For more information on market sizing and the “interesting attributes” mentioned above, read my article titled “Sizing Your Market“
Describe how you have already validated certain things that were previously assumptions that were critical to your success but now have been validated through various methods. Then project forward the additional things you plan to validate and how you will go about doing it. This shows your methods and approach. The truth is that you’re regularly going to be thrown “curve balls” that you need to react to, so demonstrating your methods is far more valuable than trying to predict the future.
For more information on the most valuable aspects of your business plan to validate, read my article titled “Your Initial Business Plan is a Huge List of Assumptions“
Hopefully you have been carefully listening to your prospects and customers. If your philosophy and culture is highly customer-centric, describe this and give specific examples of what prospective customers have told you.
Past Successes (other ventures)
Have you previously set out on a course to accomplish ____ and achieved it? It doesn’t exactly matter how you get there but tell the story in this manner: “While at _____ we set out to _____ and we got there by A, B, C.” Show that you’ve successfully executed on a vision and used validated learning and customer centricity to do it.
Are there other companies that have some common threads to your business plan that are already doing well? Of course, you don’t want this to be a direct competitor but rather a company that has various business plan attributes that overlap with yours. Perhaps it’s related to the problem being solved, the target customer served, some unique technology incorporated into the product, the method of acquiring customers or the monetization strategy. In fact, finding a successful company that overlaps with yours in two or more such elements will give even more credibility and suggestion of predictability.
In the early days before there’s a track record of revenue and other measurable results to put onto pretty graphs, investors’ decision-making process is as much art as science. If they’re seeking predictability, it possibly means they are either too analytical in their approach for such an early-stage investment or their gut (instinct) is giving them concern and they’re trying to counterbalance that with an analytical approach.
Raising a pre-seed round before your product is built and launched with paying customers is unbelievably difficult. In addition to the concepts mentioned in this article, check out my article titled “Threading the Needle for a Successful Pre-Seed Round“.