Does your financial model explain how your business really works? Give you clear insight into the financial health of your startup? Tell a story that inspires investor confidence and will help you to raise capital? As Guy Kawasaki said so well in his entrepreneurial bible Art of the Start, “the point of financial projections is to tell a story with numbers—a story about opportunity, resource requirements, market forces, growth, milestone achievements, and profits."

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Sirk Roh
COO
Building Your Financial Model:
Key Startup Metrics
#StartupMetrics

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“Startups face a huge burden in
today’s economy, often having to
choose between funneling resources
toward creating their goods and
services or managing the often
complex accounting, tax and
financial strategy planning
necessary to run a successful
business.
~ David Ehrenberg,
Founder and CEO
Early Growth Financial Services

3. Building Your Story with Numbers
“The point of financial projections is to
tell a story with numbers—a story about
opportunity, resource requirements,
market forces, growth, milestone
achievements, and profits.
Your job is to create a numerical
framework that complements and
reinforces the vision you’ve painted with
words.” – Guy Kawasaki
www.earlygrowthfinancialservices.com 3

4. Presentation Overview
The essentials of startup financial management
• What are investors looking for in your
finances?
• What is a financial model?
• Setting financial goals and objectives
• Milestone funding
• Bottom-up financial projections
• Spend
• Budgeting
• Top-down projections
• Cost assumptions
• Reforecasting
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5. Why a 3-Year Financial Model?
A comprehensive financial pictures serves as the road-map
for your business
• Helps you understand your cash burn
• Forces you to evaluate key
performance drivers
• Validates your assumptions
• Puts challenges into perspective
• Iterative process continuously
improves your assumptions
• Insight into your business model
• Clarifies decision-making process
(short-term and long-term)
• Gives you leverage of accurate
baseline valuation
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6. What Goes Into a 3-Year Financial Model?
Essential components to your model
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7. Identify Major Objectives for Your
Company
Assess where you are and what you want to achieve
www.earlygrowthfinancialservices.com
Venture funding and
negative cash burn
Positive cash burn and
no venture funding
What do you want to accomplish
with next raise?
What are the goals you want to achieve
during this time period?

8. Process for Creating Your Financial Model
How to approach the process and get buy-in
1. Go to stakeholders and members of
executive team – what do they need to
achieve objectives (revenue, product,
market, strategic, etc.)?
2. What is needed from a
programmatic perspective?
3. Compile information and discuss
with CEO (maybe executive team):
total amount requested relative to
milestone
4. Dialogue about wants and tradeoffs
5. Use dialogue to create bottom-up
forecasting budget
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9. Bottom-Up Financial Projection
Forecast for realistic revenue potential
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10. Spend for Bottom-Up Projections
Consider relevant operational costs
• Customer/Cost details
• Human resource costs
• Consultant and professional services
• Research and development
• Office and admin
• Sales and marketing
• Capital spending
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11. Budgeting
Use your budget to plan your actions
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• Budgeting created on accrual basis: budgeting
versus actual results
• Difference between cash and accrual is
around capital expenditures
• Report budget by department and major cost
drivers (expense categories and revenue
categories)
• Plan actions: how quickly will this impact
revenue and what will you be able to achieve
based on spending
• Identify key variables
• Identify key revenue assumptions
• Run different scenarios

12. Budgeting Exercise
Start from a milestone perspective
• If company has been around for
a while, look at historical costs
• What do you need to
accomplish before you run out
of money, or in a specific time
period
• Ask budget owners what they
need to accomplish goals
• Tradeoffs
• Trending analysis
• Trending initiative
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13. Top-Down Projection?
Not particularly useful, but necessary for investors to show
market potential
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14. Reforecasting
Your financial plan is always evolving
• Don’t do a 5-year plan, at
most 3-year
• Update your budget on a
quarterly basis (at least)
• For investors budget on a
quarterly basis for first year
and then annually
• What’s realistic in terms of
timeline and reforecasting
on monthly or quarterly
basis?
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15. Thank You and Q&A
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Sirk Roh
contact@earlygrowthfinancialservices.com
415-234.3437
www.earlygrowthfinancialservices.com
Follow us @EarlyGrowthFS