Do early-stage startups need a financial model?
Do early-stage startups need a financial model as they raise their angel or pre-seed round? A recent post from Tim Nielsen resurfaced this frequently debated topic and he made a great case for why founders shouldn't push back against creating a financial model, even super early on. Tim notes that founders often argue that it is difficult to create a financial model when their company is pre-revenue, because there are so many unproven assumptions. Mapping out a three-year (or potentially five-year) forecast can seem like crystal ball gazing at the early stages. However, he proposes that "the PROCESS of creating a financial model" is foundational and critical for startup founders for the following reasons: 1️⃣ Fundamentals: A competent financial model demonstrates an understanding of your business and the unit economics at play. 📊 Metrics: It identifies key performance indicators and shines a light on critical metrics (and fosters early experimentation and assumption validation). ⏳ Expectations: It places key milestones on a set timeline and illustrate your burn rate and runway in a manner that you can track against. 🤝 Accountability: Financial models set the expectations around what will be accomplished before a venture faces its next capitalization stage This is why it is never "too early" to start modeling your assumptions, determine your businesses true drivers, and lay the groundwork for your validation methods going forward. Do you agree? —— ♻️ If you found this helpful, please share PS - If you need help building a financial model, post "📈" in the comments and I'll send you a link to Forecastr's free financial model templates that will help get you started.