Nathan Beckford, a Chartered Financial Analyst, explains why startups need financial models. He covers how to use models as operating roadmaps, which metrics matter most, and how they help with fundraising. He also introduces his project Founders Suite.
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I've been working for the past 10 years as interim CFO and biz dev guy at a variety of startups. I worked with Kickstarter in their early days, helped them write their first business plan. I ran financials for Clicker, which was acquired for $100 million about 2 years ago, and I've worked with lots and lots of other startups. So really just have a passion for startups and entrepreneurs, so it's exciting to see what you guys are all doing. And I'm starting something new called Founders Suite, which is tools for startup founders, so very kind of meta-startup. But today we're going to talk about mostly financial modeling, and we'll go through this at a pretty quick pace. You're not going to walk away with all the details on how to build a model, but at least you're going to walk away hopefully with a framework for thinking about your business in numbers. So let's first go through a few points about why even bother with this exercise. First of all, doing a model, is taking your vision and putting it into hard numbers. And it's actually a really healthy thing to do, right? We all have these great brand— grand ambitions of what we're— how we're going to change the world. Putting it into an Excel spreadsheet really forces you to think about like what drives your business and what is important in your business. You know, a financial model is an operating roadmap. Especially for the first 2 or 3 years, we'll build a model on a month-by-month basis. So you're literally putting into cells what you're going to be doing month by month, whether it's hiring people, whether it's spending on marketing, you know, it really forces you to put together an operating plan for the next couple of years. Healthy thing to do. A good model is something you can use as part of your pitch, right? I think at the end of this you're going to be pitching investors your startups. I don't know how much financial information you're going to be doing in that quick pitch. It sounds like you only have about 2 minutes. But if those investors are interested, they're probably gonna wanna see more information about your business, right? You hook 'em with that first pitch and then they wanna dig into what your business is really all about and how you're thinking about your business. That's where a model comes in. It's a great credibility proof point to show that you really understand what your business is all about. First of all, let me pause for a quick moment. How many people are— have built a model for their startup already or are familiar with modeling? So a third to a half is comfortable. All right, that's useful. And then finally, a model is a great way to kind of zero in on the key things that really drive your business, as I talked about. And most startups will have a few key performance indicators, a few metrics that they really closely track and monitor. And that's what a model is helpful for. And then finally, at the end of the day, especially if you're raising money, the model has a nice output function that tells you how much you're going to make, how much you need, how much you need to raise. I always show this just quickly, like don't take my word for it, here's a few commentary from VCs. I need to get Tim to add a little blurb up here or something to tell why modeling is important. Yes, sir?
Do you have any examples of startups that have models available online?
At the end of this, I will point you to a place where you can get a couple sample models to play with. A lot of startups— it's interesting, in the last few years startups more and more are putting up their pitch decks online, and it's really a great thing that startups are opening the kimono and really getting open about their business. Models are still a little bit sensitive in some ways, so unless the startup's maybe gone bust, They don't tend to put their numbers up as much.
It should be a proposed model or one that you had taken personally.
Yeah, I've got some sanitized ones which I'll make available to you guys at the end of this. So VCs like to see models is the gist of this. And then I like this. I'll give you guys this deck afterwards. You don't need to read this right now. But I love the headline on this. Dream the vision, but live the numbers. It's really great, as I started this off with. Taking your vision, putting it into hard data.
