You don't need a financial model at seed stage
Whenever I come across these stupid quick fix suggestions “you don’t need a financial model at seed stage” it screams one thing about the founders that follow it — a half-baked lazy operator lacking the real essence of what building and getting on the Venture backed train is about.
🤔 I wholeheartedly concur that a 5 or 10-year financial forecast for a pre-seed/seed startup is total guesswork filled with biased assumptions, it cannot and should not ever be seen as a definitive prediction.
🔍 Typically they are put together with no genuine understanding of what is needed for the continuous funding trajectory a startup is looking to join and herein why they are viewed as pointless.
💡 But here is where the real value is and why every founder should go through the process:
Call me old school, but when tackling any equation, it’s normal to start with what’s known. And what’s known is that VCs need fund returners, aiming for 163x on investment for every Startup they invest in, knowing that power law dictates, very few will achieve it.
🎯 By adopting a Fund Returner Mindset and understanding the 163x return goal, you now have a clear target. This target dictates the milestones necessary to get through each funding phase. Ahhhh now the puzzle begins to unravel. By reverse engineering you can start to understand what is needed to get to subsequent funding rounds, the pivotal KPIs, the revenue benchmarks, and the business metamorphosis required from pre-seed through to Series B and beyond.
🗺️ Your financial model serves as a roadmap more than anything else, it’s a tool that quickly lets you know and outlines:
➡️ If you are Venture backable and scalable.
➡️ How to align with investors.
➡️ In setting and tracking milestones that are crucial for securing subsequent rounds of funding.
➡️ It aids in optimal resource allocation.
➡️ The model also helps in identifying financial risks and creating mitigation strategies.
➡️ It’s a yardstick against which actual performance can be measured.
🔬 Now with this approach it will give you a clear way of understanding what is expected and allow you to experiment and iterate in a clearer way in driving toward your targets.