If you're hoping to raise some external finance for your business venture then you will need to show investors what the potential is and what they get back for their investment.
The Numberslides forecasts gives you a number of metrics to do exactly this and not just for the first invesmtent round but the forecasts details your entire funding road map during the forecast period. In order to provide the investor returns, we also need to look at the business valuation throughout the forecast period. The forecasts give you:
IRR (Internal Rate of Return) -The internal rate of return (IRR for short) is the most commonly relied-on return metric in equity real estate investment. It is also the most complicated. The internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows from the investment, across time periods, equal to zero. Once the IRR is determined, it is typically compared to a company’s hurdle rate or cost of capital - this is the target return of the investor. If the IRR is greater than or equal to the cost of capital, the company would accept the project as a good investment, excluding any other factors.
Note - in order for the IRR calculation in our forecasts to return a number there needs to be a negative value (outlay) in the number series - like MS Excel - (we are working on this 😉)
MOIC (Multiple on Capital Invested) - this in broad terms is the total absolute return / the amont invested and produces a multiple e.g. a 10x MOIC would mean for every £1 invested the investor receives £10 back - so a 10 times multiple. Generall, the earlier the investment, the greater the perceived risk and so the higher the returns should be for an investor taking that risk.
Note - While the MOIC provides a nice snapshot of overall profitability of an investment, it does not discount to present value – in other words it does not incorporate the time value of money and account for the duration the investor’s money is tied up.
Generally the higher the IRR the better the investment, though this does need to be looked at through the eyes of a potential investor. The IRR needs to be believable as does the whole forecast. The IRR is a percentage which does not give an idea of absolutes which is why we also calculate the MOIC which gives the absolute value.