What are some best practices for presenting IRR assumptions to investors?

2 Use realistic scenarios

One of the biggest challenges of presenting IRR assumptions is dealing with uncertainty and variability. You cannot predict the future performance of your startup or the market conditions with certainty, so you need to use realistic scenarios that reflect different possible outcomes. For example, you can use a base case scenario that represents your most likely expectations, a best case scenario that shows your optimistic projections, and a worst case scenario that shows your conservative estimates. By using scenarios, you can show investors how your IRR assumptions change under different assumptions and contingencies, and how you plan to mitigate the risks and capitalize on the opportunities.

3 Provide clear and transparent inputs

Another best practice for presenting IRR assumptions is to provide clear and transparent inputs that show how you arrived at your numbers. You should explain the sources and methods of your data, the assumptions and drivers of your growth, and the logic and rationale of your valuation. You should also provide sensitivity analysis that shows how your IRR assumptions vary with changes in key variables, such as revenue, margin, exit multiple, or exit timing. By providing clear and transparent inputs, you can demonstrate your credibility and confidence, and invite constructive feedback and dialogue from investors.

4 Benchmark against peers and industry standards

A third best practice for presenting IRR assumptions is to benchmark them against peers and industry standards. You should compare your IRR assumptions with those of similar startups or funds in your sector, stage, or geography, and explain why your assumptions are higher or lower than the average or median. You should also compare your IRR assumptions with the industry standards or expectations of venture capital investors, and justify why your assumptions are realistic or attractive. By benchmarking against peers and industry standards, you can show investors how you stand out from the crowd and how you align with their objectives and criteria.

5 Use visual aids and storytelling

A fourth best practice for presenting IRR assumptions is to use visual aids and storytelling to communicate your message effectively. You should use charts, graphs, tables, or diagrams to illustrate your IRR assumptions and scenarios, and highlight the key takeaways and insights. You should also use storytelling to connect your IRR assumptions with your vision, mission, strategy, and traction, and show investors how you can create value and impact with their capital. By using visual aids and storytelling, you can capture the attention and interest of investors, and make your IRR assumptions more memorable and persuasive.

6 Be prepared for questions and challenges

A final best practice for presenting IRR assumptions is to be prepared for questions and challenges from investors. You should anticipate the common or likely questions that investors may ask about your IRR assumptions, such as how you validated your data, how you tested your assumptions, how you handled uncertainty or risk, or how you differentiated yourself from competitors. You should also be ready to defend or revise your IRR assumptions if investors challenge them or suggest alternative scenarios or inputs. By being prepared for questions and challenges, you can show investors that you are confident and flexible, and that you welcome their feedback and input.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?