How to Impress VCs with your Startup Model (Part 1): Tactical Tips for Financial Modeling

Here’s what we look for in a model at BBGV

At BBGV, there is a lot we take into account when considering whether to invest in a company — from the market size to the competitive landscape to the team. One key element is reviewing a company’s financial projections. When a member of our investment team is excited about a founder’s vision after an initial meeting, a “next step” is often to review the company’s financial model. Reviewing the model helps us understand the market size, how quickly the company can scale, and the assumptions around levers for growth, profitability, and financing needs — all of which are critical factors when weighing an early stage investment. We know the projections often won’t (or ever!) play out exactly as modeled but it helps us understand how the founder is thinking about the business. In our diligence, we build a case outlining what we’d have to believe for the company to become a multi-billion dollar business, pulling from critical assumptions about the business, market and team. The model is a crucial tool in building this case as it provides insight into the core financial levers for success.

How we use the financial model to analyze an investment at BBGV

While we don’t expect the model to be an accurate prediction of the future (raise your hand if you’ve ever seen a startup model actually play out…), we review it to confirm a few key things:

  • A16z provides an overview of 16 startup metrics to track for all companies as well as specific metrics for SaaS businesses to track and marketplace metrics.
  • For consumer products businesses, investors look for signs of traction — depending on the company and its timeline, traction may be demonstrated by actual revenue or by other signs of demand for the product including a waitlist or a strong community. By the Series A, companies should target $500K+ in MRR. This post by the team at Ro provides context on other metrics that are important to track for consumer products startups.
  • LTV/CAC targets are typically 3x+ but it may be too early for this metric to be meaningful at the pre-seed / seed stage.

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BBG Ventures

BBG Ventures

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BBG Ventures is an early-stage fund backing female founders with big ideas that will reshape the way we live.