Gunpowder in a Startup Financial Model

A financial model is about 3 things at it's core: investment in, hiring the right people, and acquisition of customers/users. The capital in is the gunpowder that drives the top and bottom line of your P&L. If you hate finance, replace "your P&L" with "success you're creating in your company".

Customer/user acquisition is obvious. It drives top line revenue (gross) and affects the hiring you're projecting to build-out tech, to support a growing customer base, and to increase your sales team. This all relates to product/market fit and a successful acquisition rate shaping up together and hiring to increase revenue, hiring because revenue is increasing, or both.

Hiring is how you become a juggernaut. Companies are naturally ready to hire great people at the time they also need to fundraise, so one typically comes first. If you add headcount on a model, the related unit economics that role affects should begin to improve after they catch up to speed. If they don't, you're hiring the wrong people and/or can't train and manage.

A sales hire or growth hacker should start to show an increase in acquisition and then revenue. A successful hire and training process would increase this in a non-linear way. If this is happening IRL, it's time to hire more people to do the same. New developers should be building out tech and scalability, so acquisition and implementation is based on these hires. You can also think of headcount projections speaking towards the employee option pool your investors want to pad.

I suggest building out the financial model with the investment line item in cash flow empty. Once everything seems reasonable and conservative, add the investment and adjust acquisition and hiring based on the new, available cash. Revenue and expenses should increase simultaneously. Another way to think about this is to have linear-ish growth before the capital comes in, and then use that to acquire and hire to the point of non-linear growth. If you're actually non-linear before the capital projection, then your round should come together.