Model Controversy

I had a very interesting conversation about models with an investor and a startup CEO today.

It was in an interview for a podcast coming out in the fall.

On it, myself and the startup CEO asked the investor this:

"What advice to you have for startup CFOs who are preparing for a fundraise?"

The investor's answer:

• That they shouldn't cut corners on the Financial Model

• That anything less than a 3-statement model is insufficient

• That startups - even at the early stages - should include as much detail as possible in their models.

Here's the thing:

I 100% respect this investor's preferences

AND

Both myself and the startup CEO disagreed with the advice.

The startup CEO believes this:

• That not much time should be wasted on the model at early stage because there are too many unknowns.

While I believe this:

• That models are essential for startups at every stage, BUT

• That a 3-statement model is likely overkill until around Series B for most startups,

• Both because it's unnecessary for most investors (a few cash balance and cash flow lines on your P&L are likely sufficient)

• And because FOUNDERS should build their own model at early stage, and most founders won't have the skills to build a 3-statement model.

All this to say:

There are a lot of opinions out there about models.

But many investors think they're extremely important, even from the very start.

So if you want to get funding,

It really makes sense to build one.

(...Especially if you know a CFO who can teach you how to do so in a 2-hour class plus 4 coaching sessions 🙃).

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