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💸 Financial Projections for Startups

FAQs + Template

The best founders are visionary forces of nature.

Unfortunately, this does not always coincide with excel skills and analytical thinking.

Most startups I meet need help on their financial projections:

  • How to do them
  • What to include
  • How to structure them
  • When to show them
  • What story to tell

AVC wrote a great article about how difficult it is for founders to look into the future and at the same time consider the past.

Here are the answers to the questions I keep hearing and,

as a bonus, I’ve prepared a template which you can use as a starting point.

Why do I need a Financial Model? 🤷‍♂️

…to build and validate hypotheses 👨‍🔬

Founders receive a lot of feedback from customers, advisors, mentors, investors and their teams. The key with feedback is to start somewhere and not get stuck in decision paralysis.

Start with writing down all your hypotheses and validate them one by one.

A financial model will help you filter your hypotheses (ie the right customer segment) based on your assumptions. You will be able to quickly tell if they’re feasible.

The model will give you a quick reality check if your unit economics (CAC, repeat rate, LTV) stack up and if your target customer segment throws off enough money for the effort involved to get them to buy.

If the hypothesis is

✔️ Feasible — start validating if your assumptions are correct. If they are — you found yourself a target customer worth testing

Unfeasible — either go back to your assumptions and see if you can make the customer segment work (ie government customers → increase prices if the sales cycle is really long) or cross the hypothesis off and go to your next one.

…to understand your runway and how much you’re raising 💸

The other reason to start as soon as possible is to understand when you’ll run out of money and when you need to start fundraising (if you need to).

🙄 Duh — that’s obvious!

But surprisingly, this is not done or understood by most founders.

Once you have a date in a spreadsheet showing you the exact date when you will run out of money, as opposed to a rough date in your head,

it’s surprising how it changes founders’ perspectives on their timelines, urgency and, most importantly, their focus on what’s truly important.

This clarity helps you have conversations about fundraising:

  • When do you need to start the fundraising process

Tip: that’s ~6 months before you need money in the bank!

  • How much you need to raise

Tip: ~18 months worth of $$$ from the month you raise

…to craft and support your story 🎨

The beauty of a financial model is that it can paint your company’s narrative and vision in a concise and compelling way. The model should support what you tell investors, customers and yourself.

Before launching into creating your financial model think through your company’s story:

  • Will you lead a product or sales driven company?
  • What are the most relevant marketing channels for you?
  • What customer funnel conversion do you expect going forward? Why?
  • What features will drive which financial levers?

Think through your narrative first!

Too often I see companies tell us they’re a product-driven SaaS company which then show us financial models of a sales team of 10 and product team of 3 people.

Your financial model is there to paint your strategy and flesh out your story for the reader with $$$.

When and what do I show? 📊

Financial models are useful for you to understand your own business, but also for fundraising.

In the fundraising process, there are usually three stages when you approach investors.

1) VC / Angel Introduction 👼

At this stage, you’ve got a marketing pitch deck and a target list of investors you want to approach.

This pitch deck should have roughly ~10 slides, which are supposed to raise the investors’ interest — you can find my 30mins summary here + Sam Wong’s write up here.

At this stage, you need a financial model to understand how much money you need to raise (see the previous point of how much $ you need for the next 18 months), BUT you DO NOT include financial projections.

“Usually, I don’t use… projections.. because I don’t like throwing up on the desk… 🤮

We don’t use them. Never look at them.”

- Charlie Munger

👆 not an Angel investor, but you get the idea

What you need to remember is that at this stage you’re trying to raise investors’ interest so they meet you, you don’t have to cover every last detail of your company — as this is virtually impossible in 10 slides.

A financial projection does not raise interest — it’s a best-case estimate of a hyper-confident entrepreneur and always magically gets you to $100m revenue within 5 years.

Note: What does raise interest though is your historic traction. A great traction slide can trump any other slide in your pitch deck.

2) Coffee Chat ☕

This is usually a 30 mins chat over a coffee post successful introduction. At this stage, you rarely require to show a full financial projection.

You won’t need to show slides nor spreadsheets but be prepared to discuss all the details of your historic performance — sales numbers, costs, CAC, repeat rates and fundraising estimates.

You should be able to easily find all those numbers in your model, which you should have already prepared at this stage.

3) Partner Meeting + Due Diligence 👩‍⚖️

The mid- to final stages of fundraising can have various shapes and forms.

Anything from lots of fairly unstructured coffee chats to a 45mins meeting with all partners at the VC firm.

At this stage, the vast majority of investors will ask you for your exact traction and projections what you’re going to use the raised money for.

Now, you will share your financial model in google sheets or Excel.

If you’re presenting a deck, focus on projections for the period you’re raising for.

There are two most important things to show if you’re producing slides:

  • What are you spending money on 🤑

Best practice: stacked area chart of all big expense buckets — that’s usually marketing, product, sales and other

  • How are you making money 💰

Best practice: split this across different types of revenue you charge (ie fixed vs variable) and/or different customer segments

How do I start building a model? 😲

Step 1) Storyline 📖

Before you do anything — think about what story you are telling.

Step 2) Google Sheets 🔢

Your model will change dozens of times. You probably will collaborate with lots of people on it and want to keep everyone aligned on the latest version.

Open up Google Sheets, not Excel — if you’re not convinced why Sheets over Excel — let me persuade you with this article.


Feel free to copy/paste my financial model template of a fictitious startup I call FitGochi — a crossover of a Fitbit and Tamagochi

you can find it here.

Step 3) Input facts / your traction so far 🧐

Note: You’ll start inputting numbers now. This is for many of you the uncomfortable part, as many people have deep frustration with numbers.

Remember: this is a model for you just as much as for investors. DO NOT OVERCOMPLICATE IT.

Make it simple. You need to be comfortable with the model and with changing any numbers in the model.

Either start with my template provided in the previous step or with a simple P&L.

In case you have your financials set up in Xero — export your P&L in Google Sheets and you have a great starting point. If you don’t — find a simple P&L online and start by copying it.

Step 4) Start with projecting your Expenses 🤓

You can’t predict your revenue with any kind of precision, but you should be able to manage your expenses.

- Brad Feld

Based on the story you’re telling your investors and the strategy you’re pursuing start modelling your expenses — most importantly the number of employees across teams and salaries.

Expenses are the “easy” part of your model — because, in theory, you have full control over what you spend money on and who you hire.

Step 5) Build out your Revenue Funnel 📈

This is the “hard” part of the model. Nobody knows how your business will really do and whatever projections you will come up with, everyone will interpret them with a big grain of salt.

The reason why this is interesting to the reader is to understand how you think about the business:

  • who are your customers?
  • what is your price point?
  • what does your sales funnel look like and how does it change?

The easiest way to get started is to base it on your existing traction. Project your historic performance forward with improvements which you can easily explain ie new features, improved marketing efficiency, etc.

If you don’t have traction yet, you can use benchmarks from competitors or companies operating in a similar space. Make your assumptions reasonable.

Reasonable = whatever you’re comfortable explaining with a straight face.

Step 6) Derive your Unit Economics 1️⃣

This is one of the most interesting points of reference for investors.

  • CAC — Cost of Acquisition — how many $ do you spend to acquire a customer?
  • Repeat Rate — how often do these customers come back?
  • LTV — Lifetime Value — how much will they spend on your platform?

At a Series A / B and later stage, investors will put a lot of focus on this as they will be assessing the scalability of your product.

At earlier stages, this is still a valuable sense check if your business model is compelling.

Investors see your startup as a money making machine. 🤖

They put 1$ into the machine (CAC), want to know what the mechanics of the machine are (Repeat Rate) and how many $$ it spits out (LTV).

Step 7) Scenario Planning 😭🤷‍♂️😃

Your model finally spits out numbers.

But you know there are millions of levers to pull and uncertainties which will affect the final numbers.

Investors also know that things never go to plan, so they will discount lots of your assumptions ie slower sales cycles, conversion rates, how much of the market you will capture, how much your growth rate will decay over time, and revenue which also affects your spending and hiring.

It’s worth implementing a couple of different scenarios to pre-empt questions.

Consider adding another 2–3 scenarios to your current financial projection — slow down or accelerate some of the revenue and expense assumptions.

What do investors look for? 🕵️‍♀️

You’ve got a model — but how do you know it will resonate with investors?

The most important thing an investor is looking for is not what your model predicts, but rather how you came up with the assumptions.

That’s one of the best tools they have for assessing how clearly you think.

Every investor will look for different things in your model, but here are a couple of things which they almost certainly will review.

⚠️ Basics ⚠️

Make sure you get the basics right:

  • You don’t capture 50% of the market within 12 months

ie you’re selling to councils — there are 200 in Australia and you assume you can sell to 100 in the first year

  • You convert your funnel at reasonable rates

ie your landing page doesn’t have a 90% conversion

  • You have the right team split

ie you say you’re product lead, but show that you’re spending 80% of total expenses on the sales team

Magic Numbers 🔮

These are just a couple of rules of thumb, which can give you some guidelines to where your financial model should land. The below is most applicable to raising VC.


VC is not for everybody, you can still be a thriving business, without VC funding.

If you do intend to raise VC though, growth is what VC firms invest in. 📈

  • Revenue Growth: the first thing VCs check are unreasonable assumptions. The easiest way to find them is to look for YoY growth rates exceeding 3x. The best companies worldwide grow at 3x YoY, if anything exceeds that — you better have a great argument as to why you think you can grow that fast.
  • T2D3: Triple, Triple, Double, Double, Double — that’s what VCs are looking for in your YoY revenue growth for the first five years. If you can execute on that — you’re on a great path to $100m in annual revenue.

🍬 Bonus 🍬

I hope this helped you get your head around what investors look for and where to get started.

Here are some more resources worth looking at to get started:

If you have any questions or need help on your Financial Model — hit me up on michael [@]

👇My Newsletter — SUBSCRIBE HERE👇



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