In this Mucker Growth Session, Steven Plappert, CEO and co-founder of Forecastr, tackles how to use your financial model to the best capacity when fundraising. Your financial model can be your secret weapon in the fundraising process when you use it as offense. It can be used as a tool to move investors over the line to writing checks.


Fundraising is a funnel where investors convert the deeper into the process you go and you can use your financial model as a value creation mechanism with investors. You can build trust and investor confidence if you leverage the model in the right way.

Use your financial model to plan your raise to begin with.

A financial model is a business simulator, simulating your business in the future. It should help you and potential investors understand what does the future hold for the company? How do you get from where you are now to the pot of gold at the end of the rainbow?
An investor wants to understand: you are here at this point today, but how are you going to get to that exit point where I can expect a big return on my investment?

That is a game of the future. And a model can really help us tell that numerical narrative and draw the low risk path to that pot of gold. A financial model helps back up your storytelling and craft a narrative that resonates more with investors.

Your model should include the milestones you want to reach with this round, and what are the resources, the people, and the overall spending you need to incur in order to get those milestones...i.e. the cash you are raising. That way, you can refer back to your model when fielding investor questions to demonstrate you’ve thought through each of those components and give more weight to your answers.

Don’t avoid a financial model if you’re pre-seed or seed stage.

Some founders are skittish about building a model at the pre-seed or seed stage, largely because there are so many unknowns and the numbers are going to inevitably be wrong. But that’s missing the point. The point of a model at this stage isn't really the output of the model as such; the point of the model is it's a window into your level of critical thinking as a founder. It gives the investor insight into things like how you are planning to acquire customers, what channels you want to use, how you’re planning to monetize, how you’re planning to scale your team, etc. Have you actually even thought through that? Do you actually have a plan and can you articulate that plan? Are you set up well to lead your team?

A lot of founders out there are shooting from the hip at the pre-seed and seed stage. And that’s a missed opportunity. If you build a financial model (not exhaustively detailed, but solid) and you can speak to it with investors, it will move the needle significantly on conversion at that pre-seed/seed stage, because you're going to show up more prepared than other founders competing for those investment dollars.

Fundraising as a funnel

Fundraising is a funnel. You have lots of targets at the top of your funnel that you’re trying to convert to an initial meeting where you're going to pitch the investor. And in that meeting, you're trying to set the hook and build interest. You're not necessarily trying to close. You're trying to convert the investor into a deeper dive where you're then going to convert them into an investor.

Use of the financial model in a pitch deck

Common Founder Mistake: going far deeper on a financial model initially than you need to get.

In your pitch deck, you want to lead with the more interest building elements of the deck. Then, put your financials slide right before the ask slide, so you tease the investor with financial projections. You want to signal to the investor you’ve got a financial model, that you’re the type of company that makes data driven decisions, you’re the type of company that puts critical thought into how this company scales. Steven likes to keep it really simple and just include summary income statement on an annual level.

The investor is going to look at this slide. They're going to scan the revenue ramp. And they're going to ask themselves this line of questions: is that attractive enough to hit my return profile? Is that actually worth my time as an investor? Is this founder thinking big enough? They're also going to ask themselves is that reasonable? Are the numbers flying off the page, conveying that this founder is really maybe unsophisticated or hasn’t given their model much thought?

When you show the high level output of your financial model, it naturally begs the question where did you get those numbers? And that's exactly the question that you want. When we think of the fundraising funnel, the job of this initial pitch is to build interest, to set the hook and get the investor converted into a secondary meeting that could be a product demo, or a market deep dive, or a financial model walkthrough. So wherever the investor leans in, you can say “I'd love to dig in on that. Let's set up a 2nd meeting and go deep. I know this business back in front. I would love to sit down with you for an hour next week and walk you through that model, show you just how well we understand this business."

When you get to that financial forecast slide, you want to be pre-empting that leaning in and that next meeting to get them investing in the company. In that next meeting, be prepared for a few next steps, each tailored to an investors interest. Common ones are a product demo, a go-to-market strategy, or a financial model walkthrough.

If possible, Steven encourages not sending out a deck beforehand because a deck is supplemental to the narrative that you as a founder are telling. You’ll be able to convey the energy, passion, excitement of the deal more than just a deck or model standing alone. Investors by nature have to say no more than yes, so that’s their common mindset. You as a founder need to be able to craft that narrative toward yes. Remember that you're telling the story. So hit on the key points that you think are mission critical and then open it up for a dialogue. Get the investor talking. Get them to expose their concerns, ask questions, and start to chat. That's where they'll start to build trust with you is in that back and forth. After you’ve walked through the deck, share the model. The investor deserves to be able to dig in once you’ve had the opportunity to set it up and color it first.

One last point: fundraising as a game of momentum. So always follow up, identifying a clear next step at the end of every meeting, making sure investors don't fall into email purgatory, because momentum is so critical in fundraising.


Thanks to Steven Plappert for sharing this information.


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