When it comes to the art of fundraising in the competitive world of business, the creation and presentation of a financial model can be one of the most persuasive tools in a founder's arsenal. Models built as per best practices modeling standards serve as a testament to a startup’s diligence and attention to detail. Through our extensive experience in providing modeling support across various fundraising transactions, we have gathered the key metrics and information investors are actively seeking from founders.

Business Plan Projections
A well-laid-out business plan is a primary checkpoint for investors. A financial model that includes 3-5 years of Profit & Loss, Cash Flow, and Balance Sheet projections demonstrates a founder's vision, foresight, and understanding of their business's financial intricacies.

Validating Traction with Historical Data
Investors are interested in both your past performance and future potential. Historical data, such as trial balances and KPIs like new user acquisition, user retention, and unit economics, validate a startup's traction, showcasing growth and operational efficiency.

Target Market Size
Understanding the market is important for projecting future growth. Including market size data in the financial model and linking it to business growth is a good practice, especially during fundraising transactions. This practice instils confidence in revenue projections and their future potential reach. For investors, a larger market translates to greater opportunities for substantial returns, making it a critical component in assessing the viability and scalability of the business.

Management KPIs
Key Performance Indicators such as Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR) are vital signs of a company's health. These metrics provide investors with insight into the startup's recurring revenue, indicating business stability and long-term viability. A financial model highlighting important business KPIs shows that management has a strong grasp of the company’s financial performance.

Funding Requirements and Future Milestones
It's not just about how much money a startup needs; it's about understanding the roadmap of investment. A financial model that details the cash requirements in line with future milestones sets a timeline of expectations and deliverables. By clearly articulating the use of funds, you delineate how each dollar will be strategically spent to fuel growth areas within the company. This strategic approach to funding demonstrates a founder’s acumen for resource allocation.

The Path to Profitability
Investors are keenly interested in when the business will become profitable. A detailed roadmap to achieving positive EBITDA or Net Profit can be a crucial factor in securing investor commitment.

Cash Burn and Runway
Cash is the lifeline of any business. Understanding a company’s cash burn rate and runway is crucial as it indicates financial stamina and the ability to reach key milestones before additional funding is needed. Forecasting this timeline reassures investors about the company’s sustainability on the path to profitability.

Business Valuation
Valuation aligns expectations with reality. The desired pre-money valuation calculated using methods such as the Venture Capital (VC) method, Comparable transactions (Transaction comps), and Discounted Cash Flow (DCF), sets the stage for negotiations. It reflects the current worth of the business and its potential value, making it a critical figure in any fundraising conversation.

Cap Table
A cap table is crucial in understanding the equity structure of a company. It provides a detailed list of all equity shareholders, both existing and new. The cap table illustrates the impact of equity dilution on existing shareholders in the event of issuing new shares across multiple funding rounds. This transparency is vital for investors to understand their potential ownership stakes and the overall equity distribution within the company.

Planning for the Exit
Finally, a financial model isn't complete without laying out potential investor exit scenarios. These calculations, typically looking 3 to 5 years ahead (depending on the stage of the business), outline how investors can divest and the returns (IRR and money-on-money multiple) they can expect.

Conclusion
A well-constructed financial model demonstrates a founder's vision, strategic planning, and meticulous attention to detail. Essential elements include comprehensive business plan projections, validation of traction through historical data, linking business growth to target market size, and highlighting key performance indicators (KPIs).

Detailing funding requirements and their intended uses, setting realistic growth milestones, and outlining a clear path to profitability are crucial for attracting investment. Additionally, forecasting cash burn and runway reassures investors of the company's financial stability, while realistic business valuations facilitate negotiations. Finally, planning for investor exits completes the narrative, making the financial model an invaluable tool for both founders and investors.