Don't waste your time on a financial model | #7

Against the opinion of some well-known investors I argue that there is merit in creating a financial model as a pre-seed founder.


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A while ago I came across a post from Harry Stebbings (Founder of 20VC) recommending pre-seed founders to not waste time on a (3-year) financial models – “they’re simply poetry”.

I can understand where Harry is coming from. Everything is in flux at this early phase of your founder journey. Also no doubt, the No1 priority is finding out whether your idea has potential by speaking with (potential) customers, testing your hypotheses (e.g. in an MVT approach) and simply doing things. Action beats prediction, as an entrepreneur.

Also, I’d run away from investors who ask questions which clearly show that they don’t know what matters most at your current stage. You know that’s the case when they care more about the accuracy of your assumed CAC (“€130 vs. €150”) or office cost projections than they focus on understanding the pain of your customers, the “why now”, the “why you“ or your ambition as founders.

However, this post – probably seen by hundreds of thousands of LinkedIn users – portrays financial models at pre-seed in a dangerously simplistic way. A first-time founder might easily conclude that there is zero merit in building a financial model at this stage.

I’m convinced that building a financial model at pre-seed is helpful – it’s not a waste of time. Let me unpack why.

For a deeper understanding

Building a financial model is a forcing function1 for a deeper understanding.

Translating your doing and your narrative with all its assumptions into numbers forces you to think about your company from a new perspective. It makes you ask questions you have not considered until now – in other words: reducing the unknown Unknowns.

What are all the major cost categories? How do they develop over time? When would the first revenues kick in? In which way – one-off vs. recurring? What are the main drivers & assumptions backing up revenue growth? Why do we think these are plausible? What does that mean for our runway? And how far would a €200k angel round get us?…

Even when you’ve thought of the question, you might not have answered it quantitatively – an obvious path to concretise. What number shall I put when I have no data at hand? Embrace the “strong opinions, weakly held” notion, and have a day zero hypotheses which you update once you’ve learned more.

Furthermore, the financial model enables you to understand crucial interdependencies. The equation that reflects how you capture value as a business gets easily complex. Understanding important cause-and-effect chains by playing around with the variables helps you internalise the mechanics of your business model. What happens to our runway when we change the price of your per-seat SaaS license from €49 to €79? What’s the ARR if the monthly churn is 30% instead of 10%?.. The answer is just one click away.

It prepares you well for fundraising

Imagine that you just closed your funding round. You realise that your investors haven’t looked even once at your financial model – not surprising at all at pre-seed. Doesn’t that mean that you completely wasted your time creating it?

No, because there is a high chance that creating the financial model has helped you indirectly.

You’re in a much better position to answer investor questions on topics such as how you plan to use the funds, the GTM hypotheses, the team rampup etc. when you’ve built a holistic spreadsheet capturing it all.

Furthermore, – and that might be more relevant for first time founders – a financial model helps the investor gain confidence that the founders are capable of sound business planning. Someone who can easily be trusted to navigate through a P&L with revenue and cost items in the million EUR range.

How to build the financial model?

What sets the start-up route apart from the SME route is that you won’t follow a company blueprint (the heydays of copycats are over). You’re not walking in someone’s footsteps, your endeavour has yet to be proven.

Therefore, I recommend that you don’t take a spreadsheet template and simply fill it with numbers. Instead, aim at building it from scratch. Understand the key assumptions, main drivers and crucial dependencies based on first principles. Yet, there are plenty of great financial model examples out there – helpful as input or inspiration (e.g. 1,2,3).

When setting up your financial model, I’d bear in mind a few DOs and DONTs.


  • Keep it simple – no need for an integrated 3-statement model, 5+ sheets or complex scenario analyses

  • Focus on the relevant metrics for your specific business model – you’re a B2B Marketplace, then integrate the all key B2B Marketplace metrics

  • Signalling the right ambition level for a VC case


  • Inconsistent with your investor deck

  • Weak backing of your key assumptions (validated hypotheses > insights from other firms > benchmarks from reports…)

  • Terms are not self-explanatory or at least properly defined

  • Hardcoded numbers in formula (vs. referring to other cells)

Four types of spreadsheet exercises

Let’s put the financial model in perspective. It’s one type of spreadsheet-based analyses. It’s good to look at the different types, their goals and use cases separately.

In my opinion, there are four types of spreadsheet exercises which make sense for any founder regardless of whether you’re building a deep tech start-up or a micro-influencer productivity tool.

In a nutshell

So should I not spend time with customers vs. in front of an XLS working on my financial model?

That’s a false dilemma. You should do both! No doubt about spending much much, much more time with the former though.

And remember: The raison d’être of your financial model is not predicting, it’s understanding.

1 The problem is that for so many important, but not urgent projects, we aren’t being forced to take action. There’s no immediate deadline and nobody is asking us. A forcing function forces conscious attention upon something and thus deliberately triggers the performance of a task.

Founder’s view: Maximilian Fleitmann

Maximilian Fleitmann is a serial founder and angel investor. He’s currently building Magic Design to empower startups with great design He has raised $5m+ over the past 7 years and has helped fellow founders raise $100M+. His investments include Odin, Remote First Capital, SPACECADET and OnDeck

You’ve built various businesses in the past. When and how did financial models help you as a founder?

For me, a financial model is a must-have for every business – even from the get-go. It helps me to understand better what the main drivers of my business are. Both on the revenue but also the cost side. So for example in a business that is sales-driven I know I need to push the number of demo bookings to scale the business. Or if I run a performance ads-driven business I can see how changes in my CACs will impact my margins. With this information, I can plan 10x better what to focus on.

At the start, everything in the model will just be assumptions or past experiences. Over time that will change and the model will get more sophisticated with real numbers in it.

When assessing investment opportunities as an angel investor do you look at the financial model? What questions do you think a spreadsheet with financials can answer at the pre-seed stage?

A proper financial model is always a big plus for me. Not because I expect the numbers in there to be true but more as homework for the founders themselves. The best founders know exactly which assumptions in their model need to hold true so that their business will work out.

So to summarize. Yes, I always look at the model. To understand what will drive the business going forward and what the company needs to focus on.

What’s one piece of advice you wish you had known earlier?

As a founder, you will always have unlimited ideas - new products, new partnerships, new marketing channels. But you will always have limited resources. Choose your battles wisely because your focus is your biggest lever.

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