How to win investors over with your financial model in 5 steps

The investor pitch creates a narrative behind the vision of your startup. As founders, we spend hours perfecting the slidedeck and building inspiration through problem solving. Your financial model may only provide a piece of this narrative, but it also establishes the foundation of your business through hard data and strategic sustainability. You may have created a beautiful slidedeck, engaged your audience, and rehearsed the hook – but can you use your model to build a lasting relationship with investors and prove your team’s potential for growth?

Consider these five steps to win over investors with your financial model and a carefully orchestrated follow-up strategy.

Step 1: Build a bottom-up model

A bottom-up analysis more effectively communicates the strategy behind your business and more accurately projects sales. On the other hand, a top-down analysis begins with the market as a whole and more arbitrarily forecasts your growth as a percentage of that market. Founders may find this type of model faster and easier to build, but top-down fails to utilize real sales data or thoroughly communicate forecasts based on individual sales items, which generally proves problematic for most startup models. Even more, while a generalized top-down approach may show more financial optimism initially, founders should always strive for accuracy within their model to build a transparent relationship with investors from the beginning.

Bottom-up forecasting not only showcases business unit economics, but also scalability toward profit. Clearly communicate both growth plan and monetization strategy (Revenue & Expense Plan) to illustrate (1) how you plan to acquire customers and (2) how you plan to monetize those customers. Our example below shares a revenue plan based on the sales targets from a growth plan.

This example clearly shows investors our strategy to increase customer acquisition and monetize growth. For most business models, bottoms-up analysis more accurately forecasts growth and proves true market understanding on behalf of your team.

Step 2: Use your model as a teaser in other materials (Like your investor deck)

We generally recommend that you don’t share your entire financial model in initial investor conversations. Keeping investor transparency in mind, utilize your pitch deck as a highlight reel for pertinent financial forecasts, such as revenue projections or illustrative graphs of future margins. For example, the below slide snippet shows a company’s long-term revenue projections versus available cashflow against several high-level assumptions. This creates an engaging snapshot of projections we know investors want to see without providing so much detail to be a distraction in early conversations.

Step 3: Use your model as a weapon to land the next meeting

Founder: ”I’d love to schedule time to walk though our revenue projections and growth strategy in more detail.”

Do not email investors your financial model before you can sit down for a comprehensive walk-through. Once you have pitched your deck and highlighted pertinent financial snapshots, the full financial model serves as a tool to engage investors toward a follow-up meeting.

Founders should deeply understand their financial models, top to bottom. When investors see your financial model for the first time, do not leave results up to interpretation. Harness your knowledge to build a cohesive narrative for investors. Hold the model hostage and employ it as a weapon toward getting the next investor meeting.

Step 4: Crush the meeting by analyzing scenarios

Now that you have successfully used your financial model to lure investors into a follow-up meeting, set aside time for a working session to explore your forecasted best, base, and worst scenarios. This working session demonstrates your deep understanding of the model and confidence in your startup. Even more, successfully forecasted scenarios should instill that same confidence in your potential investors.

Run this session as a partnership with the investor. This meeting begins to identify the tone of your future relationship with each other, and should reflect a tone of collaboration, rather than you defending the model against investors. Come prepared to describe the details within each of the three scenarios and utilize your model as a tool to mutually explore growth and articulate strategy.

Step 5: Send the follow-up email

Once you have walked through your financial model in detail and discussed various scenarios, follow-up with a copy of the model and a brief summary of your discussion. This allows investors to quickly reference your detailed discussion against the model as they decide whether or not to invest in your startup. If the investor posed an alternate scenario during that meeting, run the scenario with your team and provide a summary of the results in your follow-up message.

At this point, we have (1) built a bottoms-up financial model, (2) showcased financial highlights in the investor pitch, (3) engaged investors in a working session, (4) discussed forecasted scenarios, and (5) summarized the model in a follow-up email. You have shown investors much more than the ability to input data — you have proven validity behind your vision and scalability beyond arbitrary market potential. These five steps not only demonstrate the competence of your team, but also define an investor relationship for your startup’s most pivotal timeline. Do not underestimate the impact of your financial model, and remember where to find Forecastr when you need a little help.