4 Financial Model Techniques That Secure Startup Funding

Getting funding isn’t easy! To attract investors, you need more than just a great product; you need to back it up with a great financial model. This is the only way to convince investors that your startup is worth their money.

But there’s something you must know about preparing and presenting financial models- it goes beyond showcasing numbers on a spreadsheet. Your financial model must be strategically prepared to help investors understand the business of your startup. So in this post, I’ll offer you 4 practical techniques gathered from successful pitch decks of thriving startups. Let’s get right into it:

1. Make a Proper Revenue Forecast

Revenue forecasting simply means predicting how much money you’re going to make. Your financial model must include a rich capture of your expected income. I know it sounds tricky, especially if you’re a new startup. But here’s a good way to go about it:

Start with a multi-scenario projection: Assume the various directions your business can go within a certain period. What if you sell a ton of products? What if things are a bit slower? Plan for all possibilities- the good, the bad, and the ugly.

Secondly, conduct market research: Check out what your competitors are doing. What works well for them? You can gain some insight into how to shape your numbers.

Keep it realistic: You can do this by keeping your projections grounded in real data. There are several financial metrics or indicators to base your projection on. But your priority should be your month-over-month revenue growth.

Here’s what a VC partner at Frontline Ventures, William McQuilan has to say to this: “If a startup has a basic product or is looking for market fit, then one of the top three metrics I always ask for is MoM (Month on Month) revenue growth.”

Most importantly align with investor’s expectation: Most venture capital firms want a 10x to 50x return on their investment within 5 years. So, your revenue forecast shouldn’t go less than this!

2. Showcase Growth With Your Startup Model

The next technique is to show how your startup can grow in your model . Your financial model should include a roadmap for growth if you’re going to get investors to say yes to your pitch. Luckily, after analyzing LinkedIn’s pitch deck in 2004 that gave them access to a $103 million funding (before they went public in 2011) I discovered two easy ways to go about this.

Insert clear growth plans: Show how your sales will grow over time with proposed monetization strategies. For example, let’s say you want to open a few stores or launch new products. Make sure you’re incredibly thorough with your plans. Investors like to see when and how you plan to make more money!

Include market opportunities: Explain to investors why there is room for your business to grow in the market. Just like LinkedIn was able to present its unique purpose and user base among the wide ocean of social media platforms. In the same vein to secure startup funding, you should present ways you plan to expand to new areas or reach more customers

3. Comprehensive Expense and Cash Flow Analysis

While presenting ways your startup making money is important, including how much you spend in your financial model is just as crucial. This is where expense and cash flow analysis comes in handy. Here’s a breakdown of component parts of your analysis:

Operational expenses: This refers to everything you spend on your startup, like rent, salaries, and marketing. Distinguish between fixed costs (like rents) and variable costs (like marketing, which can change).

Burn rate: This describes how quickly you’re using your money. Investors want to see how long your startup can last before running out of money.

Cash flow rate: This is how money comes in and goes out over time. Being able to demonstrate a good cash flow means investors will trust you more. As this demonstrates you know how to manage your cash and can properly deploy funding to scale your startup.

4. Exit Strategy for Your Startup

An exit strategy is a plan to sell or transfer a startup’s ownership once a major milestone or financial value is reached. It is one unusual component you can add to your financial model to get investors to say ‘yes’. This might sound weird, but it’s a very cool way to guarantee investors when and how they will see their money again. Here’s what your exit strategy should cover:

Exit methods: Explain how you plan to give back the investors their money. This could be by selling the company, merging with another established startup or making it public (sells stocks to the public). Airbnb was able to get more than a $100 billion valuation just by going public.

Reasonable timelines: Don’t be vague about the timing. Investors will appreciate it if you give them a realistic time frame for when this exit strategy will be incorporated. You can study successful startups and how they timed their exit strategies. However, at Damisrael Solutions we can help you tailor your exit strategy and timing to your unique circumstances.

By partnering with Damisrael Solutions, you get an optimized financial model that investors can’t resist. Our team of business consultants and financial experts can help you:

Craft clear and impactful financial narratives. and develop realistic and data-driven financial projections.

So, book a session right now.

Conclusion

Remember, a financial model isn’t just a bunch of numbers- it’s your startup’s superpower! And by using these techniques, you can show investors just how amazing your startup is and can be. So go ahead, get creative with your financial plans, and get ready to secure the startup funding you need to scale. You’ve got this!