Making a financial model for your early-stage startup?



You’re not alone… and some insights on what investors look for when they ask for one…

Written with George Okpamen (Bloomberg Beta Fellow) and Mark Schulz (Bloomberg Beta CFO)

You’re a few months into your startup, and you’re meeting investors for the first time. They seem to be properly warmed by your intro, you’ve laid out the case for why your service is desperately needed by some initial customers, and they like your early progress— they even seem to like you!

Then, the dreaded moment: “Do you have a financial model you can share?” (Panic. Do I? I guess I should? I can probably make one fast enough to get it to them in time. Why are they even asking me??”) “Of course I do. I’ll send it as a follow-up.”

We know that moment. As venture investors, depending on the exact stage you’re at, we might care deeply about your financials — and we know that requesting a first financial model can be like asking a founder to recite poetry in Klingon. Financial models bedevil founders, especially those who skipped a career episode making spreadsheets — early founders are busy making real products and talking to real customers, so why exactly should they now stop and make up an imaginary numerical future for their business? (So many investors also want financial models that are far too precise or forward-looking than it’s reasonable to ask of an early founder… how can you predict revenue four years from now if you only started (Read more...)