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Thanks for posting this. I disagree slightly with the point on 5 year projections. With any economic model, garbage in means garbage out. I think everyone kn

by lhuang 17y ago

Thanks for posting this. I disagree slightly with the point on 5 year projections. With any economic model, garbage in means garbage out. I think everyone knows this. In addition to re-packaging your model to answer more relevant questions as Jason suggests why not also have a conversation on your assumptions/inputs, defending them with the logic used and comparable examples. I don't have vast experience pitching to angels, but I've helped large enterprises size markets for new products and offerings. I've found that having a good conversation on your inputs helps tremendously in getting past that initial "smell test." Most of the time, people just need to hear the reasoning behind using such and such multiplier, growth rate, etc. Yes its all crap. But thats the nature with any model. Showing that your crap smells less than others may be a good starting point to consider.

jacquesm 17y ago
During the time that I was pitching I flat out refused to do 5 year predictions, and my 1 year predictions came with a fair amount of bandwidth. Initially my partners thought I was crazy but in time we came to the conclusion that it is better to be honest and say that you can't predict further out than that rather than to make stuff up that can be shot down in no time at all. And it did work, we did find 2 investors, one for 100K and another for 200K.
- lhuang 17y ago
  I'm not defending 5 year projections. Simply arguing for a different pitch method. Projections are fine so long as the inputs are reasonable. If people don't buy your assumptions they won't buy your conclusions. 1 year, 5 year, or 10 year.
  - jacquesm 17y ago
    The problem here is that when you're pre-launch or just launched you do not know your product life-cycle yet, so it is absolutely impossible to get this right. You can make a stab at it but until the first year is out there is going to be so much change to that projection that even if your input data was valid at the time you made the projection it will look like advanced science fiction by the time those 12 months roll by.
    - lhuang 17y ago
      Fair. But you don't need to be accurate, just within reason. Explaining your inputs logically is important for other people to see at your level. Plus as another posted mentioned, going through these motions helps you better understand your product and target audience.
raganwald 17y ago
I recall having a conversation about this with an investor in the early 90s or so. He told me that a five-year projection was horse-apples, but he also insisted we do one because the exercise of guessing is valuable in and of itself, and he wanted to see evidence that you tried to think things through. "In preparing for battle, I have always found that plans are useless, but planning is indispensable." –General Dwight D. Eisenhower
- lhuang 17y ago
  Good point.
- physcab 17y ago
  There's a similar concept in PhD programs when they make you present a timeline for future research. Every grad student knows that over the course of 2-5 years things will break, experiments will fail, people get discouraged, interests change, money runs out, whatever...but for the sake of completeness and forethought, they require you to detail future milestones. This stage of planning proves to people that you are committed to what you are doing and are in it for the long haul.
  - the_real_r2d2 17y ago
    I think there are different monsters. One thing is to project what are you going to do in the next five years and another completely different is to forecast what are you going to "sell". I think the post implies that the later is crap. For the former I imagine that all of us know that things are going to change (as I think you imply too about a PhD program).
magoghm 17y ago
At a meeting with a major VC firm I asked: "Aren't we supposed to have a business plan?" (they had called us because they were interested in our product). One of the partners at the VC firm laughed and said: "If I need a business plan I'll write it myself! It will be much better than any business plan you could write. What we want from you is your capacity to create new products."

by lhuang 17y ago

jacquesm 17y ago

During the time that I was pitching I flat out refused to do 5 year predictions, and my 1 year predictions came with a fair amount of bandwidth. Initially my partners thought I was crazy but in time we came to the conclusion that it is better to be honest and say that you can't predict further out than that rather than to make stuff up that can be shot down in no time at all. And it did work, we did find 2 investors, one for 100K and another for 200K.

lhuang 17y ago
I'm not defending 5 year projections. Simply arguing for a different pitch method. Projections are fine so long as the inputs are reasonable. If people don't buy your assumptions they won't buy your conclusions. 1 year, 5 year, or 10 year.
- jacquesm 17y ago
  The problem here is that when you're pre-launch or just launched you do not know your product life-cycle yet, so it is absolutely impossible to get this right. You can make a stab at it but until the first year is out there is going to be so much change to that projection that even if your input data was valid at the time you made the projection it will look like advanced science fiction by the time those 12 months roll by.
  - lhuang 17y ago
    Fair. But you don't need to be accurate, just within reason. Explaining your inputs logically is important for other people to see at your level. Plus as another posted mentioned, going through these motions helps you better understand your product and target audience.

raganwald 17y ago

I recall having a conversation about this with an investor in the early 90s or so. He told me that a five-year projection was horse-apples, but he also insisted we do one because the exercise of guessing is valuable in and of itself, and he wanted to see evidence that you tried to think things through. "In preparing for battle, I have always found that plans are useless, but planning is indispensable." –General Dwight D. Eisenhower

lhuang 17y ago
Good point.
physcab 17y ago
There's a similar concept in PhD programs when they make you present a timeline for future research. Every grad student knows that over the course of 2-5 years things will break, experiments will fail, people get discouraged, interests change, money runs out, whatever...but for the sake of completeness and forethought, they require you to detail future milestones. This stage of planning proves to people that you are committed to what you are doing and are in it for the long haul.
- the_real_r2d2 17y ago
  I think there are different monsters. One thing is to project what are you going to do in the next five years and another completely different is to forecast what are you going to "sell". I think the post implies that the later is crap. For the former I imagine that all of us know that things are going to change (as I think you imply too about a PhD program).

magoghm 17y ago

At a meeting with a major VC firm I asked: "Aren't we supposed to have a business plan?" (they had called us because they were interested in our product). One of the partners at the VC firm laughed and said: "If I need a business plan I'll write it myself! It will be much better than any business plan you could write. What we want from you is your capacity to create new products."