When pitching to a VC, how forward-looking should my financial projections be?

Here's a fairly common question: When pitching to a VC, should an entrepreneur include plans based on anticipated future rounds of funding or should the projections and deliverables be based on only the current round that is sought?

There isn’t actually one “right” answer to this. Before I get to that, let me mention that perhaps the most important thing an investor wants to see in an entrepreneur’s projections isn’t the actual list of numbers but the thought process of how these are arrived at, how the entrepreneur plans to actually achieve these numbers and whether the order of magnitude broadly makes sense.

For example, if an entrepreneur is focused on a market that just doesn’t seem big enough to justify a VC investment, then the conversation ends right there. Or if the entrepreneur’s projections appear to show that her company will achieve, say, a 90% share of her SAM with 80% gross margins, then that would come across as over-optimistic and lead to a lot of skepticism.

Now, let’s assume that those first-level issues are solved and come to the specific question here. As I said, there is no one correct way to present numbers. My personal preference is a mix of the two approaches described in the question.

• Make projections based on the current round of funding. This doesn’t mean you have to perforce assume you will be profitable just based on the current round of funding. If you plan to be profitable after the current round of funding, that’s great. If you don’t plan to, that’s fine too.
• Then add information on when you plan to raise your next round of funding, how much you anticipate this to be and what you will do with the money. (You can plan to raise money even if you think you will be profitable before then).

Naturally, you know less about your plans for the distant future compared to your plans for the next few months. Smart investors know this too so don’t worry too much about predicting the distant future with 100% accuracy.

One last point: one of the most common mistakes when providing financial projections for early-stage, unprofitable companies is the statement, “This is my last round of financing.” No, it isn’t.