Q: At a pub in Los Gatos, CA a casual conversation with some young, first time entrepreneurs lead to an interesting comment:
"…the business plan outlines our estimated (operational) expenses but how do I know an investor is not going to look at these numbers and say…'are you f'ing kidding me' and right then and there we can loose this guy (his interest)…"How can an entrepreneur build these projections most accurately and in a way that will maintain credibility with potential investors? What could be defined as the "best practice" for entrepreneurs dealing with this subject?
A: (Brad) As I’ve said in the past, I’ve never met a financial plan for an early stage company where the revenue side was correct. However, I’ve met plenty where the cost side was correct (or – at least – appropriate). The key here is simple – you want to have a cost structure that makes sense, covers all the bases, but doesn’t assume a big revenue ramp to be supportable.
Financial conditions for technology startups have been cool, to say the least, since the economic crisis began. But now, buoyed by two recent public offerings, venture capitalists are showing a renewed interest in fledgling technology firms.
The fourth quarter of 2007 saw 17 venture-backed technology companies go public, one of the biggest spikes in stock offerings in a single quarter since the height of the dot-com boom in mid-2000. In contrast, the last quarter of 2008 and the first of 2009 saw no venture-backed public offerings in any industry, according to the National Venture Capital Association. Mergers and acquisitions have also slowed, and the number of venture funds raising money at the beginning of the year was smaller than at any time since 2003.