August 30, 2023

Guidance for Agtech Startups

The slide below is from one of the decks I reviewed this week.

I see this in various forms way too often, and this is a good example. In this case, the startup has done a five-year set of projections starting with actual numbers from 2022 and half of 2023 (remainder projected) and then forecast out 2024, 2025 and 2026. See if you can spot the red flag. It’s the S&M line (Sales and Marketing). This slide and that line leads to a few questions, and some of them would lead to a few more.

1) What accounted for the lift from 2022 to 2023? Was that sales, marketing or both? Was it for people or for marketing campaigns and how much for each? Increasing from $238k to $1.74M is a huge lift for a single line item in one year (especially because the deck is being used in August 2023, so 2/3 of the year with the lift is almost over). Who is the executive that is going to build the sales and marketing team, and have they built a team that big that fast before? Have they managed sales and marketing teams before? If not, expect a lot more questions from investors.

2) Then look at the 2024, 2025, and 2026 numbers for revenue. From 2023 to 2026, the forecast is projected to go from $8.5M to $21.6M in revenue, yet S&M only goes up by $120k. You’re asking an investor to believe that you can achieve 150 percent growth in revenue with a 6 percent growth in S&M expenses. That is not going to pass the sniff test without a few more details. If you’re going to be paying sales reps and putting them on a $2M quota, you’re expecting to get six to seven new sales reps worth of quota attainment without having to hire new people or run extra marketing campaign costs. That is a big ask. Things might get uncomfortably warm during this set of questions.

Bottom line, this type of spreadsheet will be seen as a top-down exercise. It may be enough for an early-stage fund raise (the startup in question has raised $5-7M over eight years with the most recent close from about three years ago.) The next raise is likely to be in the $5-10M range and you should expect the investors to start to ask more detailed questions as the round size goes up. To avoid tough questions on the financial slide, just make sure to tie bottoms-up and tops-down numbers so that they tie together with ratios and numbers that make sense and fit investor expectations. You can find a Google Doc I built to help with this exercise here. Building a good financial slide is important because you want to spend time discussing your big vision and long-term potential with investors more than the details of the financial slide. You can fund raise better off vision then diving deep on the numbers.

A lot of startups and those in agtech have found value in this information on my post about it on social media. Jacob Reynolds said “I appreciate the real-life example vs. theoretical. Always makes for a better post and relatable to others in a similar positions!” Sharing this kind of information is one of the ways that the Center of Innovation and Technology works to support and drive change in agtech.