This financial model template has been prepared by Albert Group Services Pty Ltd (Alberts) for general information only and illustrates a fictitious worked example. Alberts is not a financial adviser and the model should not be taken as constituting professional advice. Alberts provides no warranties and makes no representation that the model is appropriate for your particular circumstances. Alberts and its representatives are not liable for any loss or damage suffered by any person whether due to negligence or otherwise arising from the use of, or reliance on, the information provided or use of this model.

So … you have pitched to an investor and made it past the first few hurdles. Congrats! You’ve come further than most and should take a moment to recognize that.

But – now they’re asking for a data room and along with that a financial model. You’re probably not an accountant and having funded yourself (potentially with family/ friends backing you too) to date, you’re hustling for a way to do it yourself. The good news is – investors are after something a bit simpler than a financial model. The bad news is – it’s still a new skill set and founders often trip up at this stage.

To help you on your way – we’ve made a worked example of what a no-frills financial model should look like for investors. You can download it and plug your own numbers in – or use it as a basis for making your own – huzzah! Time saved.

But before you click send – let’s walk through what investors are looking for from your model and common pitfalls.

What are investors after?

I’m trying to run a business, and we all know forecasts at the early stages are always wrong – so why do investors want this in the first place? What are they trying to learn? Here are some things investors look for:

  • Are you paying your staff market wages? If you’re not, this cost will go up and/ or you may lose staff. Good staff demand good rewards. Whilst here – don’t forget that wages go up over time and that there are additional costs to the nameplate wage (super for one, but worker’s compensation and other costs also add up)
  • Have you got the humility to pay your top achievers more than yourself? This is especially important at pre-seed and seed. Big founder packages are an immediate red flag in the early stages.
  • Are you about to run out of cash? You’re raising – this may very well be the case! This is a test to see if you’ve been transparent (How much detail are you going into? Does it match up to your pitch deck numbers?) / realistic and also helps set the timeline for your raise.
  • Are you expecting to grow at first-adopter rates into perpetuity? High growth rates are hard to sustain, and most businesses drop their growth rate as they enter the mass market, factor this in! You’ll surprise your investors by forecasting this eventuality. If not – you should have very good reasons to back this up.
  • Are you expecting operating costs to stay flat whilst your topline grows exponentially? Whilst if you’re pitching for venture capital, we’re certainly expecting the engine to eventually be humming and revenue to grow faster than costs, more customers means more customer support and more product work etc. – factor this into your forecasts. It takes more staff to manage 1 million customers than 1 thousand. You can sense check this by checking your customer-to-customer support staff ratio.
  • Are you investing in the product and R&D over time? This should relate to your competitive moat. If you want to be a unicorn, you’re going to have to keep innovating – factor it into your costs!
  • Unit economics – are you earning more from your customers than you’re paying to acquire them? This is a strong indicator of product-market fit. Note this changes over time, it’s not a static number.
  • Your drivers – what actually brings in your revenue? How does this link to your marketing or product costs? Are you aware of what’s driving your growth?

Tests investors may do to your model:

  • Graph your revenue vs costs – is this reasonable?
  • Compare your customers to customer support staff
  • Check the ratios of where your costs are going – what % is staff, R&D, marketing etc. If you’re pitching product-led growth – this should come through in your model.
  • Scenario test your model – plug in their own assumptions (e.g. what happens if Covid depresses earnings another year? Can the business sustain a dip in growth? What if it costs more to acquire customers next year?)

We’ve provided a very no-frills model, you may want to consider additions appropriate to your business, and investors would expect the complexity to increase as your business grows. Potentia