Fantasy models

There was an elegiac piece by John Naughton in the Observer yesterday on the origins of spreadsheet software back in 1979.  He discusses the pervasiveness of spreadsheets in modern business culture.  This part reminded me of real estate development appraisals and all their problems of uncertainty and subjectivity.

Spreadsheet software is also at the heart of the startup culture. When a tech entrepreneur is seeking funding, they need three things: an “elevator pitch” – the essence of the Big Idea in once sentence; a PowerPoint slide-deck; and a business plan which is basically a spreadsheet fantasy model outlining increasing sales, imaginary revenues, and that mythical “break-even” point.

In discussing the projected IRRs from a development opportunity recently, one contact recently cited one firm that had a target IRR of 20% “simply to entice the banks”. Great software but…

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