Gravyty Pro Forma Financials
Rich Palmer w/ Andrew Corbett
2019
This case continues the business planning case of the previous chapter. The goal is to
see how the executive summary and pitch deck are translated into numbers. The key learning
from this case is how to build credible pro forma financials while operating in an environment
of extreme uncertainty. The Gravyty team uses a combination of the build-up and the
comparable methods discussed in the chapter. As early stage pro formas are more art than
science – since there are many assumptions and often no operating history to build trendlines
on – these financials are created from scratch. The class structure can be as follows:
Class Outline
I. Building financials mini-lecture
a. Build-up method (vs. top-down marketing penetration)
b. Comparable method
II. Analyze Gravyty financials. The discussion around these can be structured as such:
a. Market Verticals
i. What makes a vertical attractive during a startup’s beta phase?
ii. How would you estimate a Total Addressable Market (TAM)? How do you
find a balance between a TAM that is too large (unrealistic) or too small
(unattractive to investors)?
1. Initially, we looked at capturing technology budgets because we
iii. Given the different possible segments they might pursue (Philanthropic,
Education, Recreation & Sports, etc.) what questions would you ask to
figure out which market(s) to focus on launching in first?
b. Customer Acquisition
i. Is this business better suited for SMB or Enterprise level sales? Why?
Zacharakis, A., Corbett, A., & Bygrave, W. (2020) Entrepreneurship, 5th Edition. Hoboken, NJ: Wiley.
1. SMB: The projections of 9,925 customers by 2019 suggest this is
what management wants
2. Enterprise: High touch, longer sales cycles that was discussed is
better for Enterprise
ii. Epilogue: After about 6 months, management decided to go upstream to
Enterprise level customers (e.g. lower number of customers, higher
contract values). Would you have made this decision? What might have
brought them to this decision?
c. Compensation
i. Would you expect the management team to take salaries pre-revenue?
Why/why not?
ii. What is missing from the org chart by 2019?
iii. Do the assumptions for headcount pass the “common sense” check?
d. Cost Assumptions + Comparables
i. Why would the founders want to include a learning curve for cost
assumptions?
ii. Would you have chosen these comparable companies (Blackbaud, Intuit,
MicroStrategy, etc.) ? Why? Would you have chosen the same
comparable metrics? What else is important to you?
1. As it is a lopsided market – there is only one public nonprofit
technology company in the space (Blackbaud). Other large
companies are privately held. So, getting public company comps
e. Revenue + Income Statement
i. What go-to-market strategies are needed for small, medium, large?
ii. Is going from $7M to $56M to $195M in revenue realistic?
Zacharakis, A., Corbett, A., & Bygrave, W. (2020) Entrepreneurship, 5th Edition. Hoboken, NJ: Wiley.
systematic way (rather than all at once across multiple fronts
which is what the financials would suggest we should do)
3. Give the students guidance that they shouldn’t be keeping ideas
secret and should check models in a safe environment (e.g. with
classmates, professors, etc) before trying them out on real-world
investors.
f. Valuation
i. What would you value the company at? Gravyty is looking to raise
$500,000 at a $2.25M pre-money valuation. Does this seem appropriate?
Why or why not?
ii. Is it better to have a high or a modest valuation in a termsheet?
III. The last piece that we analyze is how well do the financials reflect what was
discussed in the body of the plan (case from previous chapter).
IV. Build your own financials. If there is time in class, I have the project groups start
building their own financials. Note: I don’t require my students to build the actual
spreadsheets from scratch, although many chose to do so. Frank Moyes and Steve
Lawrence from the University of Colorado have developed a robust template free to
download. http://leeds-faculty.colorado.edu/moyes/bplan/html/spTools.html.
Epilogue
As of December 2019, Gravyty has undergone 3 rounds of funding, two with angel investors,
and the third with a private equity group. They have been growing 3x per year each year since
inception. They have focused on midsized and enterprise hospitals, nonprofits, foundations,
and colleges and have continued to maintain first-mover advantages in AI for this space.