HQQA047 Do you have a model?

Do you have a model? – Not the runway kind

Here’s what they mean…

Model is short for a financial model. 

Do you have a model? basically means; have you spent a long time making an excel model which shows every little detail of your company and how your company will scale up? No?

The answer to the question (Do you have a model?) is always “yes”, even if it is “no!” Think about series 1 of Silicon Valley where Jared needs to come up with a business plan overnight…

You have to have a financial model. They are not easy to make but they are absolutely critical. I was working with a founder in Europe and we discovered the CAPEX required to service customers would mean a massive outlay of cash and that’s his economics would simply not work. Seeing this he did a deal with the GM of a major company in his country and the leasing basis model has revolutionized his economics. That’s the power of a good model!

The most time intensive part in a financial model is your revenue assumptions. The cost part is comparatively simple (Though harder in ecommerce). Where you will lose your mind is making the model make sense! The best way is to have robust KPI sheets where you can track margins, CACC/LTV ratios and the like.

If you don’t have a financial model, then I have 5 templates covering eCommerce, saas, enterprise saas, subscription commerce and apps. You can check out all the fundraising models here.

If you want to learn why you need a financial model, I wrote a blog which will take you through how to think about making your financial model and how a VC will review it. Why you are making a financial model for your fundraise is wrong.

I personally don’t think you should share models with investors after a first meeting unless you are really getting the round done expediently, in which case normal rules don’t apply. In the first meeting you are trying to figure out if you want to work together and if everyone buys into the opportunity. Why bring in your imaginary numbers at this point? ?

What you need to say

“Sure, we spent a lot of time planning our fundraising needs from it. It’s our first meeting so my key goal here is to ascertain if you buy into the problem we are solving, that there’s a huge market opportunity and if you want to bet on us to be the winners? I think we can agree our forecasts aren’t useful if we can’t all buy into the basics? Assuming we proceed, I’m happy to share our model with you.

I would be happy to walk you through the high-level milestones we want to hit if you like, so you can get a feel for the size of business we plan on building?”