"Your projections look like a hockey stick. Walk me through how you get from here to there."
Every founder has heard some version of this question. And most fumble the answer.
Financial projections are one of the most misunderstood parts of fundraising. Founders either wing it with unrealistic numbers or overcomplicate things with 50-tab spreadsheets that obscure rather than clarify.
Here's the truth: Investors don't expect your projections to be right. They expect them to reveal how you think. Your model is a window into your strategic assumptions about growth, unit economics, and capital efficiency.
This guide shows you how to build financial projections that investors actually respect—and use to make investment decisions.
Before building your model, understand what investors look for:
A model showing $50M ARR in Year 3 from a company at $100K today will get dismissed immediately. Investors have seen thousands of projections and can spot fantasy math instantly.
Every output should trace back to a defendable input. When an investor asks "Why do you assume 8% monthly churn improvement?" you need a real answer.
Your model should show a path to positive unit economics. If your LTV:CAC never gets above 2:1, there's a fundamental problem.
Sophisticated investors want to see how the business performs under different conditions—not just the optimistic case.
How much revenue do you generate per dollar raised? Your model should demonstrate efficient use of capital.
For most seed and Series A raises, you need a 3-year projection with monthly granularity for Year 1 and quarterly for Years 2-3. Here's the framework:
Start with your revenue drivers, not revenue itself. Work bottom-up:
For SaaS/Subscription Businesses:
For Transactional/Marketplace Businesses:
Model how you'll acquire customers:
Example breakdown:
| Channel | Monthly Spend | Leads Generated | Conversion Rate | Customers | CAC |
|---|---|---|---|---|---|
| Paid Search | $20,000 | 400 | 5% | 20 | $1,000 |
| Content/SEO | $5,000 | 200 | 3% | 6 | $833 |
| Referrals | $2,000 | 50 | 15% | 8 | $250 |
Break costs into categories investors understand:
Cost of Goods Sold (COGS):
Operating Expenses:
Your biggest cost driver. Model by function:
| Department | Current | Year 1 End | Year 2 End | Year 3 End |
|---|---|---|---|---|
| Engineering | 4 | 8 | 15 | 25 |
| Product | 1 | 2 | 4 | 6 |
| Sales | 2 | 5 | 12 | 20 |
| Marketing | 1 | 3 | 5 | 8 |
| Customer Success | 1 | 3 | 8 | 12 |
| G&A | 1 | 2 | 4 | 6 |
| Total | 10 | 23 | 48 | 77 |
Don't just show income—show cash:
The assumptions sheet is where sophisticated investors spend the most time. Include:
Build three versions of your model:
Your realistic expectation. This is what you actually think will happen with solid execution. Growth rates should be achievable, not aspirational.
Everything goes right: a key enterprise deal closes early, viral growth kicks in, churn drops faster than expected. Show what's possible, but keep it grounded.
What if customer acquisition costs increase 30%? What if churn is 2x higher than expected? Show how you'd adapt—slower hiring, focus on retention, etc.
Present the base case as your primary model, with scenarios available for discussion.
Before sharing your model with investors, verify:
Revenue that suddenly inflects upward with no explanation. Growth should stem from identifiable drivers: new channels, product launches, or team additions.
SaaS gross margins typically expand as you scale. If your margin stays flat at 60%, explain why—or show the improvement trajectory.
Each salesperson generating $1M+ in Year 1 of their tenure? Unlikely. Model realistic ramp times (usually 3-6 months to full productivity).
What happens if CAC increases 25%? If your model breaks, you need to build in more resilience.
Revenue recognized isn't cash collected. If you have annual contracts, show the cash impact of billing cycles.
In investor meetings, don't walk through every cell. Instead:
Keep a detailed model available for deep dives during diligence.
For seed and Series A, 3 years is standard. Monthly detail for Year 1, quarterly for Years 2-3. Going beyond 3 years adds uncertainty without adding value—investors know anything past Year 2 is largely speculative.
It depends on your current scale, but for Series A SaaS companies, 2-3x YoY growth is typical. Anything claiming 10x+ needs exceptional justification. The "triple, triple, double, double, double" framework (3x, 3x, 2x, 2x, 2x growth over 5 years) is a common benchmark for high-growth startups.
Having professional help ensures accuracy and credibility. A fractional CFO can build your model, stress-test assumptions, and prepare you for investor questions. For significant raises, this investment typically pays for itself in better terms and faster closes.
Popular tools for financial modeling:
Whatever tool you use, ensure you can export to Excel/Sheets. Many investors will want to manipulate the model themselves.
Building investor-ready financial projections requires both finance skills and fundraising experience. Consider:
Your financial projections tell investors how you think about your business. A thoughtful, well-structured model demonstrates strategic clarity and operational rigor—two qualities every investor looks for.
Build your model bottom-up from real drivers. Document your assumptions clearly. Create multiple scenarios. And remember: investors don't expect the numbers to be right. They expect them to be defensible.
Amit Patel is a startup advisor with 12 years of experience working with early-stage companies on fundraising and financial strategy. He has helped founders build financial models that have raised over $200M in venture capital.
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