Financial Models for Early Stage Companies

Are They Important? Hell Yes

One of the essential diligence items I look at during diligence is the company's forecasted financial model. Sometimes I get hesitancy or an eye roll when I ask for one. The founder thinks that I am trying to see the business's growth potential or that I am trying to trap them into a number. This couldn't be farther from the truth. It is nearly impossible to forecast growth in the early stages accurately.

I ask for financial models because it helps me understand how the founder thinks about the business—the drivers of the revenue and how the expense structure tells me how much thought went into the raise. It tells me if they are more into fundraising the company building.

Models do not be overdone in the early stages- just simple revenue ramp, staffing, and assumptions tab. I have plenty to share if anyone would like to see one.