Projections Don't Matter
I saw a presentation this week with the usual hockey stick revenue projection... what I like to jokingly refer to as the $1m, $4m, $10m, $1 billion slide. The team didn't make the mistake of talking about their projections as overly conservative (which they clearly weren't) but they did click right through the slide as if it told the whole story and warranted no further discussion.
Revenue and income projections just aren't that important for an early stage company, I can "predict" with 100% certainty that they will be wrong. The important questions, needless to say, are by how much and in which direction; simply looking at a 5-year projection of an income statement gives no way to tell. I would much rather see a slide of key assumptions that will drive a company's economic model than I would the result of those assumptions spread into an income statement.
My advice to entrepreneurs presenting to VCs would be to focus on the most important financial drivers of your business. Depending on the specific model, these could include the price of the product, the cost to build or serve the product, the customer acquisition costs, the cost savings inherent in scale, the capital expenditure and development costs required to build the product and so on. Explain and defend the margins that should be realizable once the business gets to scale. And give a sense of what kind of market share you should be able to realize over time. But save the projected income statement for your business plan... it really provides no information content during a presentation.
I saw a similar slide in a presentation from a couple of recent Stanford GSB graduates pitching a retail concept. Interesting idea, though untested. They obviously felt that to attract capital they needed some umph, so they drummed up a $1.5 billion slide. But get this: they got to that number by taking the revenue they anticipated per store and multiplying it by 50--which they thought was the long term potential market. How long? I asked how rapidly they planned on launching stores and they said 2 years for the first one and 6 months for each after that. So this was a $1.5 billion opportunity IN 27 YEARS! I told them to take the slide out because far from getting people excited, it would only make people question their credibility.