7 Deadly Sins of Fundraising Financial Models

In today’s competitive landscape, attracting investor interest often hinges on the quality and clarity of your financial model. Kevin Siskar, CEO of Finta, and Craig Gainsboro, Founder and CEO of Ignition Consultants, recently hosted an exclusive AMA to address critical mistakes that can undermine a startup’s fundraising efforts.

Here are the “7 deadly sins” that could derail your fundraising journey - and actionable ways to avoid them.

1. Sin #1: Making Financial Models Too Complicated

Why It’s a Problem: Investors and advisors rely on clear, easily navigable financial models to assess your business potential. Overly complex models - ones that are hard to review or modify - create unnecessary friction and slow down decision-making.

Solution Tips:

Use Excel for flexibility and security (add password protection if needed).
Simplify assumptions and make them toggleable to test “what-if” scenarios- like changes in customer acquisition costs or churn.
Color-code your inputs (use blue for assumptions), and ensure every sheet has totals.

2. Sin #2: Skipping a Dashboard with Key Performance Indicators (KPIs)

Why It’s a Problem: Without a dashboard showcasing critical KPIs, investors struggle to grasp the levers that drive your business. This oversight signals a lack of operational insight.

Solution Tips:

Integrate a dashboard summarizing vital KPIs. This feature not only clarifies business drivers but also conveys confidence in your understanding of performance metrics.
Highlight metrics that reveal the sustainability and scalability of your business, like monthly recurring revenue (MRR) growth, customer churn, and lifetime value.

3. Sin #3: Relying Only on Annual Assumptions

Why It’s a Problem: Relying solely on annual assumptions ignores the reality that business conditions fluctuate month by month. This can make your model feel disconnected from operational realities.

Solution Tips:

Use monthly assumptions alongside annual projections, allowing for more precise comparisons with historical data and actuals.
Monthly forecasting shows investors you’re prepared for variability, helping them pressure-test assumptions like revenue growth or cost changes.

4. Sin #4: Omitting Balance Sheets and Cash Flow Scenarios

Why It’s a Problem: Investors expect comprehensive projections, including balance sheets and cash flow forecasts that factor in capital raise scenarios. Leaving these out raises red flags about your cash management skills.

Solution Tips:

Include balance sheets and cash flow statements with capital deployment options, such as varying equity and debt levels.
Model different cash flow scenarios to demonstrate how much runway you can secure under various funding conditions.

5. Sin #5: Setting Unrealistic Short-Term Sales and Growth Projections

Why It’s a Problem: Investors know that startup projections are optimistic, but there’s a fine line. Setting overly ambitious short-term goals - especially in sales and growth - can damage your credibility.

Solution Tips:

Maintain realistic growth projections based on historical performance or comparable industry metrics.
Avoid depicting exponential growth channels unless they’ve been validated. Instead, show balanced growth that investors can believe in.

6. Sin #6: Underestimating Time to Hire

Why It’s a Problem: An accurate timeline for hiring is crucial to maintaining operational goals. Overly optimistic hiring plans often lead to shortfalls in critical roles, harming growth and operational efficiency.

Solution Tips:

Build in buffer time for recruiting, especially for specialized positions. Factor in potential turnover and account for employee churn.
Make headcount adjustments as necessary rather than rigidly linking hires to revenue milestones.

7. Sin #7: Neglecting Attention to Detail

Why It’s a Problem: Seemingly small issues - like unbalanced assumptions, formula errors, or missing founder salaries- can cast doubt on your model’s reliability and your team’s precision.

Solution Tips:

Review your model carefully for errors or hard-coded cells where formulas should be.
Be sure to include details like founder salaries and benefits, and verify that revenue projections align with your cost structure to avoid obvious discrepancies.

Building a Fundraising-Ready Financial Model

Having a thoughtful financial model enhances your odds of securing capital by allowing investors to more clearly see your business's value. Here are additional best practices for building investor-ready financials:

Cash Need Calculation: Pin down how much capital is essential, based on cash flow and projected growth. Aim to align your capital goals with your strategic business plan.
Investor-Focused Documentation: Organize and prepare financial documents meticulously, meeting the expectations investors have for due diligence.

Conclusion: Creating a Financial Model That Inspires Confidence

Avoiding these “7 deadly sins” can elevate your fundraising process, turning your financial model from a simple spreadsheet into a strategic asset that communicates reliability and growth potential. By refining your approach to financial modeling, you not only stand out to investors but also gain a clearer roadmap for your company’s future.

Take these expert insights to heart, and give your fundraising efforts the edge they deserve with support from products like Finta and the experts at Ignition Consultants.

‍

7 Deadly Sins of Fundraising Financial Models