Forecasts and the quality of forecasts are often a contention throughout capital raises and offering materials. Although they are often difficult to model for early-stage ventures, forecasts are often an item investors will request before they invest. Potential investors are likely to challenge forecasts based on the below questions. Preparing for an offering looking through the lens of a potential investor with quality forecasts before materials are offered to investors is key in preparation for a raise. The following are guideline questions to include in forecast analysis:
- Is the forecast in line with the value drivers of the business?
- What are the assumptions? Is income forecasted consistent with the presentation of the forecasted balance sheet and cash flow statements?
- Who prepared the forecasts? For what purpose?
- Is revenue growth realistic? Who are the customers? Win/loss ratio of customers will provide backup for this growth.
- What are the results of the years prior to now?
- Is revenue growth of X percentage, per annum, sustainable?
- Does gross margin increase/decrease, why?
- How was financing reflected?
- How do the forecasting models fit with any covenants?
It is best to question assumptions of offering materials before they are presented to the investors in order to have a professionally prepared offering. Forecasts are important and often critical in the success of financing. Assessing the reasonableness of a forecast through an investor perspective rather than accepting it as management's assumptions is key in investor preparation. As guidance please see SEC Press Release and Guidance on key performance indicators and metrics.
Thanks so much for reading our guide! As always, reach out to us at any time if you want to chat further about how to best articulate your company for an effective crowdfunding campaign.