How to start Your Startup's money flow Model to get Investor attraction

Presenting project or idea is very important when it comes to financial modelling. A financial model is more than a spreadsheet full of numbers; It's a powerful tool that tells your business's story, shows its potential, and shows that it can be done. When pitching to investors, your startup's financial model can help you communicate your company's offering, drive the conversation, and secure your financing.

A strong financial model becomes even more important as the current budget has less capital than 2021. According to Crunchbase, even an increase in AI financing starting in the second quarter of 2023 will not be enough to pull the global economy out of recession.

As a startup consultant, I provide clients with M&A advice, financial strategies, briefings, financial models, valuations, etc. I help with matters. I've seen before the difficulties startup managers face when they don't follow one simple rule: think about your financial model from an entrepreneur's perspective.

As investors keep a close eye on a company's finances, it can be tempting to use financing models specifically designed for startups (especially if you don't have a lot of financial knowledge yourself). However, I disagree because most models are not as plug-and-play as they seem. You may find yourself stuck in a large white space that doesn't apply to your company's business model, or worse, you can't use the space on the model because you can't change the design to your liking. While this may require more work on the front end, you'll get better results and efficiency if you start from scratch.

In this article, I will explain how I can help designers create financial models with investors in mind and how to use the model to create support.

Focus on key performance indicators (KPIs)

It's important to strike a balance in your financial model between including enough information to gain a full understanding of the financial health of your business without overwhelming investors with too many details. Focus on the most important metrics, key performance indicators (KPIs), that show your startup's performance and potential. At a competitive level this may seem obvious, but beginners often get bogged down in the details.

I once worked with a startup that created a new e-commerce platform. As the company prepares to announce its additional capital to investors, it has developed a detailed financial model where key KPIs are difficult to find. I help founders identify and track the most important KPIs for their startups and incorporate them into financial models. Here's how to do it right:

Know your business and your marketing

Start with a deep understanding of your business model, marketing copy, and what drives growth and profitability. This information will help you identify specific metrics for investors to focus on when evaluating your startup's potential. For example, a software-as-a-service (SaaS) startup might prioritize metrics like monthly revenue (MRR) and customer acquisition cost (CAC), while the market will focus on indicators like average transaction costs and inventory. We have identified the metrics that should be displayed in e-commerce initiatives in terms of customer value, lifetime value and average monthly users.

Develop KPIs with good objectives

Make sure you define KPIs that clearly reflect your startup's overall goals and growth plans. For example, if your main goal is to grow your customer base quickly, you can prioritize KPIs such as new customers, customer acquisition rate, and customer value. If your goal is to improve operational efficiency, you'll focus on KPIs related to cost control, such as gross profit and operating expenses as a percentage of revenue. The e-commerce companies I work with, which I mentioned above, know how much money they need to make from sales up to the break-even point, but they don't know how to turn this into the brand and customers it needs. We created a dashboard that tracks customers in a sales pipeline to make sure startups are on target.

Make KPIs clear and important

Make sure investors can easily find and understand the KPIs you choose in your financial model. Consider creating a KPI dashboard or tab that presents these metrics in a visual, easy-to-read format, using charts, graphs, and tables where appropriate. You can also include KPIs in financial reports or in a separate analysis section. Wherever it occurs, always make sure it is clearly written and easily interpreted.

I helped an e-commerce startup create a unique dashboard that displayed its key metrics, making it easier for investors to understand the startup's performance and talent at a glance. Finally, the company got the money it needed. In particular, investors said that a clear presentation of key performance indicators (KPIs) helped them understand the business better and gave them confidence in investing.

Integrating Your Capital Structure Statement

An equally important step in demonstrating that you fully understand your venture - financing and ownership goals - formula is to put the capital (or "cap") statement into your financial statement. expression. The equity statement is a snapshot of your startup's ownership, detailing the following items:

Founders' Equity: The percentage of ownership held by each founder, indicating their role and interest in the startup Investors' Equity: What investors own shares and other financial incentives and their distinct investments Employee Equity: Stock options and bonuses distributed to employees as part of unemployment compensation Fund Conversion: A conversion form or SAFE agreement that specifies conversion scenarios and conversion scenarios Potential dilutive effects Dilution Scenarios: Outcomes on the fund's financial future that show your startup has the potential to grow and impact existing stakeholders Impact equity provides investors with consistent and accurate information.

Creating an agile mindset

A strong financial model can help you identify any opportunity and market and, if investors act quickly, can provide a unique window into your business. Here are some important things you can say to express your urgency:

Time sensitive: I once worked with a startup that developed technical solutions, medical skills. He used his financial model to demonstrate the potential for new federal initiatives in telemedicine to generate significant revenue with a limited application window. Consequences of failure: The technology company is developing new IoT devices especially for the smart home, but there is a challenge in the future. Investors can see from the financial model that a delay in financing may cause the company's business needs to be accelerated. Speed ​​to market: Food businesses with lean business models and partnerships can use their financial models to show how quickly they can generate revenue once they receive the money. First mover advantage: Fintech startups that are leaders in their niche markets can use their financial models to demonstrate their ability to drive business and recognition through people's business support. < br>Scalability and Growth potential: SaaS companies with strong growth strategies can use their financial models to demonstrate the growth potential of their business model; This shows that monthly income can increase as investment increases.

Highlighting time-sensitive opportunities can help investors act quickly to improve business operations and generate higher profits – especially today when capital is scarcer than a few years ago and investors are more cautious.