April 8, 2024

Is it bullsh*t if an investor asks you for a financial model at pre-seed?

The pros — and cons — of building a financial model for an early-stage venture

Ben Stephenson

4 min read

In the past few years, early-stage startup founders have been able to raise money with little more than an idea, a cofounder and a whole load of confidence.

But things are changing.

Last week, US VC Jenny Fielding tweeted that in 2024, “Financial models are back!” Spreadsheets are useful, even at pre-seed, she said.

But the idea that asking for a million dollars plus should require you to open Excel is quite controversial these days — with some founders and funders rejecting the idea outright.


Fielding is an ex-Techstars MD who has funded a lot of early-stage companies. Companies with ideas, decks, prototypes, and more. She has probably seen more very early-stage startups than almost anyone on the planet.

So, why does she want to see financial models? Here’s my guess. 

You’re not Elon yet

It’s the planning that matters, not the plan.

Early-stage startup investing is full of chancers and no-hopers as well as diamonds in the rough and great visionaries. It’s extremely hard to tell them apart at the earliest stage. Pitch decks are one way but ultimately understanding the levers that a founder intends to pull is often a mathematical endeavor.

Now, of course, you think coming up with a financial model is dumb. You’re a diamond. Why should you need to prove that you understand the CAC/LTV ratio to a pre-seed investor? 

Because they don’t know you and they don’t know yet whether you’re a chancer or a visionary (or both).

Of course, if you’re Sequoia or Index funding a third-time founder off a napkin presentation in the Rosewood then you likely already know who you’re speaking to. Most pre-seed funds outside the Valley don’t have that luxury.

It shows what you’re not good at

It’s also quite useful for founders that may not have seen a lot of one part of a business seeing comparisons from VCs. I once put a model in front of a friendly VC that imagined paid marketing conversions in my space that even the best-performing marketing machines were not able to achieve. I had no idea, I was just using some numbers that felt natural and we’d seen from early-stage efforts. This helped me really refine the idea and the model.

If you’re the ex-SVP of Pharma Sales for Salesforce and you’re starting a brand new CRM targeting enterprise Pharma companies and you got there from starting multiple successful startups, perhaps you don’t need a model. For the rest of us, it’s quite useful.

They’re the only VC

Losing LPs' money is not good. It’s even more painful when the LP is an individual rather than an institution — which is the mainstay of small pre-seed funds. Additionally, small pre-seed funds are usually leading rounds and doing so with very little signal.

This means it’s their necks on the line if you run out of cash and it’s them who are going to have to call their LPs and tell them such-and-such a deal that was a smart move at the time has gone to zero. It’s far easier to have that conversation when they look at something concrete that shows them you’re not just going to YOLO the cash into Snarkcoin or whatever.

It’ll never live up to reality

Those are all good reasons to build a model. 

But the biggest reason not to put together a financial model is, of course, that it’s totally made up. The numbers in it will never come to pass and if you have one, you’re essentially hamstringing yourself from the get-go by even putting down on paper what numbers you aim to achieve.


They’re also extremely irritating for first-time founders. A $1.5bn ARR in Year 6 looks ridiculous — but if you put a reasonable-looking number then people think you’re unambitious. This is especially true outside of good startup ecosystems and when dealing with more junior VCs.

So, should you whip up a financial model or not?

The answer here is something that I recall them teaching at Techstars many years ago. If an investor requests material from you during a funding round, you need to deliver it within 24 hours or you’re vanishingly unlikely to get a cheque from them. This is because the people with the money you want think it’s something you should have and not having it is a problem.

In the world of zero-interest rates perhaps this didn’t matter; you could throw your red-flag emoji at them, call them a gatekeeper and move onto the next solo-GP with no deal flow. 

But the reality is different: raising money is a sales effort and if VCs want to see a model, then you should prepare a model.

Unless, of course, you actually are Elon.

Ben Stephenson

Ben Stephenson is the CEO and founder of travel tech startup Impala