California Investment Fraud Attorneys

When you begin an investment, it’s important to have a high-caliber team with a good track record and a clear value proposition. Because venture capitalists want to make investments that pay off nicely, you need credible financial projections that show the viability and potential of your target market. To come up with a realistic projection of your returns, you will need to dive in to your numbers and articulate enough support for your assumptions. But how do you know you are on the right track? We explain below.

SIGNS OF UNREALISTIC FINANCIAL PROJECTIONS

• Do My Numbers Add Up?: Skewing your financial projections to paint an unrealistic picture of your prospects doesn’t do you any favors. An experienced investor can see right through this. Securing funding on the strength of unrealistic numbers can come back to haunt you when you’re trying to raise your next round and haven’t met your targets. Present a top-down financial model only. With this approach, you build your financial projections from the ground up by developing detailed spending plans based on your sales targets, anticipated hiring needs, and other major cost categories.
• Can I Justify My Assumptions?: Your financial projections are only as good as the inputs built into it. Do your financial projections fully consider your competitors? Have you underestimated key metrics like customer acquisition cost? Be sure you can identify and fully support all of your major assumptions. This requires you to research the market, and to be realistic about costs when making comparisons.
• Do My Numbers Fit My Story?: According to Guy Kawasaki, “The point of financial projections is to tell a story with numbers.” Ask yourself: “Do my numbers tell a story? “Can I distinguish the main characters from the minor players?” “Are my numbers all over the place, or are they concise?”

Your financial projections should reflect your revenue model, your market, and your business, not someone else’s. Make sure that these figures support your entire business plan. Although business conditions can change, keep these guidelines in mind when making or evaluating financial projections.

When you are assembling your projections, be sure you are:

• Utilizing typical annual profit percentages for companies in your industry
• Paying yourself a comparable salary
• Ensuring you ultimately make a reasonable return on your original equity investment

Do you have more questions about unrealistic return projections? Contact our California team of investment fraud lawyers, or call (424) 622-0062 to begin your case evaluation.