Business Models are Taking an Early Lead

Focus is shifting to better management of invested cash and setting up a sound foundation for a business-- not just a seed stage startup. There’s a difference. Many seed stage startups are building towards proof of concept and potential product/market fit. This makes them eligible for Series A. It’s done however possible and at the expense of burn. Startups begin to act like companies once there is a Series A investment from VCs to guide them.

Everyone is talking about the reality of early stage funding being harder to get at seed and A rounds. 2016 will be the return of seed stage startups working to be companies out of the gate. This means building the soundest business model possible early on; not sacrificing proof of concept for excessive burn.

I’m admittedly a broken record for using a financial model as a tool to do this. Own the numbers going in and out of the business that have dollar signs in front of them. For many, it’s simply a reality of looking at them and facing the truth. Managing this consistently, though, can become a relief.

Having a financial model doesn’t mean pay someone a ton of money to build one for you, or spend 30 hours on a great model. Three hours in a Gsheet to structure a model with drivers is more than enough to track revenues, expenses, cash flow, and working capital. Updating this weekly, or at least monthly, with actuals to mold the forward looking projections is how you manage burn rate. Managing burn rate is how you look appealing to investors. Looking appealing to investors is how you navigate the simple conversation around the business model to get to the big vision. This big vision was what garnered so much of the investment over the last few years. Now it takes the other metrics like revenue, burn, and maybe even profitability to entice investors. Those need to be healthy for the big vision to hook investment capital.

Don’t build a financial model to show investors how you plan to build a sound business. Use the financial model to build the sound business investors are looking for. Who knows, maybe bootstrapping makes sense for the business you were ready to raise 20M for :)