How a Financial Model Can Help You Attract Top Investors?
For any founder, raising capital is an essential skill. Even though a strong pitch deck might help attract the attention of an investor, an investor’s interest is usually piqued by a strong financial model. The best practices for utilizing a financial model in the fundraising process are covered in this paper. You will see that a model may provide chances to establish trust and long-term relationships with investors.
Financial models: Beyond basic information
Essentially a financial model transforms the operations of your company, market conditions, and strategic plans into tangible metrics that are simple for an outsider to interpret. Together with accurate projections for revenue, expenses, and cash flow, it offers a thorough picture of your company’s current state and its prospects.
A model is a tool used in fundraising that offers an overview of the company you run. It fills the gap between your aspirations for the future and the observable outcomes you have already produced.
Planning: Accurately assess your capital requirements
You may better understand where your money is coming from and where you’re spending it, by breaking down your income and expenses with the support of a well-organized financial model. With this knowledge, you may examine your cash flow thoroughly to figure out the exact amount of capital required to maintain the steady growth of your company.
You may also examine crucial indicators using a model, such as lifetime value (LTV) and customer acquisition cost (CAC). Unit economics analysis may be used both now and, in the future, to compare your company’s performance to standards in the industry. You have greater influence over the fundraising process when you plan with this degree of precision.
Score A Perfect Goal
In the fundraising process, a financial model and a pitch deck have different yet complementary functions. Consider your pitch deck to be an assist. It is meant to draw the investor’s attention and is concise and catchy.
The goal, however, comes from your financial model. It enables you to discuss your company in detail using the language of investors: numbers. It serves as the basis of your story and a point of reference for all inquiries and objections.
Your pitch deck has an engaging story that you use to start the discussion. Next, you go on to your financial model to demonstrate how your story is supported by specific metrics obtained from real-life information.
Roll out the red carpet
Authenticity, transparency, and responsiveness are the pillars of due diligence. With a financial model, you may roll out the red carpet and allow investors to assess your development paths, assumptions, and risk mitigation strategies.
A model inspires trust while also supporting the claims you make. It implies that you have a strong basis in data-driven planning in addition to having a fantastic idea.
The goal of investing is to make money. your model is their greatest source of information about the sort of return they should anticipate and potential obstacles. It enables them to carefully consider your tactics and offer detailed suggestions that alleviate their worries.
Create the conditions for an arrangement that benefits both parties
At the closing step, which is the result of all of your previous conversations with an investor, you finalize agreements, get a valuation, and reaffirm your promises. At this point, your financial model may be an effective companion helping you and the investor to a win-win solution.
Your model may assist you in defending and providing evidence for any non-negotiable terms. Your model may also be used to evaluate the results of various transaction structures and support the necessary modifications. This is very helpful when complicated terms like ratchets and liquidation preferences are involved.
Negotiation is, of course, a two-way process. Your financial model should be available to your investors as well so they can use it to back up their demands when negotiating the terms they want. A fruitful collaboration that facilitates both your growth and the investor’s return may be established when both sides have similar goals, priorities, and schedules.
