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How to Create a Startup Funding Proposal: 8 Samples and Templates to Guide You

Being a founder is difficult. Managing the day-to-day as a founder while trying to secure capital for your business can almost feel impossible. Thankfully, there are different tools and techniques that founders can use to systemize their fundraise to focus on what truly matters, building their business.

One of those tools is a startup funding proposal. In this guide, we’ll break down what a startup funding proposal is and how you can leverage it to build momentum in your fundraise.

What Is a Startup Funding Proposal?

A startup funding proposal is a document that helps startup founders share an overview of their business and make the case for why they should receive funding. A startup funding proposal can be boiled down to help founders layout 3 things:

• What — what does your startup do
• How — how does your startup or product help customers accomplish what they are seeking
• Why — why does your startup need funding and why should an investor fund your business

Related Resource: How to Write a Business Plan For Your Startup

Types of Startup Funding Proposals

Like any business document, there are many ways to approach a startup funding proposal. Ultimately it will come down to pulling the pieces and tactics that work best for your business. Investors are seeing hundreds, if not thousands, of deals a month so it is important to have your assets buttoned up to move quickly and build conviction during a raise. Check out a couple of popular types of funding proposals below:

Traditional Startup Funding Proposal

The most traditional or “standard” standard funding proposal is generally a written and visual document that is created using word processing software and/or design tools.

A traditional proposal is great because it allows you to share context with every aspect of your business. For example, if you include a chart of growth you’ll be able to explicitly write out why that was and what your plan is for future growth.

This document is generally designed to fit your brand and will hit on the key components of your business is structured and predictable way. We hit on what to include in your proposal below.

Startup Funding Proposal Pitch or Presentation

The most common approach we see to a fundraise or proposal is the pitch deck. Pitch decks take the same components as any proposal and fit them into a visual pitch deck that can be easily navigated and understood by a potential investor.

Pitch decks are not required by investors by are generally expected and are a great tool that can help you efficiently close your round. To learn more about building your pitch deck, check out a few of our key resources below:

• Tips for Creating an Investor Pitch Deck
• 18 Pitch Deck Examples for Any Startup
• Our Teaser Pitch Deck Template

1-on-1 Proposals (Elevator Pitch)

A 1 on 1 proposal or an elevator pitch is the quickest version of any proposal. Every founder should have an elevator pitch in their back pocket and is a complementary tool to any of the other funding proposals mentioned here.

As the team at VestBee puts it, “Elevator pitch” or “elevator speech” is a laconic but compelling introduction that can be communicated in the amount of time it takes someone to ride an elevator, usually around 30 seconds. It can serve you for fundraising purposes, personal introduction, or landing a prospective client.”

Email Proposal

Another common way to share a startup funding proposal via email. While the content might be similar to what is seen in a “traditional” funding proposal this allows you to hit investors where they spend their time – their inbox.

The format will follow a traditional proposal with less emphasis on visual aspects and more emphasis on the written content. Check out an example from our Update Template Library below:

Related Resource: How to Write the Perfect Investment Memo

Investor Relationship Hub

Lastly, there is an investor relationship hub or data room that can be used to share your proposal with potential investors. A hub is a great place to curate multiple documents or assets that will be needed during your fundraise. For example, you could share your funding proposal and your financials if they are requested by a potential investor.

Related Resource: What Should be in an Investor Data Room?

What to Include in Your Startup Funding Proposal

How you share your funding proposal might differ but ultimately the components are generally closely related from one proposal to the next. However, be sure that you are building this for your business. There is no prescriptive template that will work for every business.

Project Summary

First things first, you’ll want to start with a summary of your project or your business. This can be a high-level overview of what your proposal encompasses and will give an investor the context they need for the rest of the proposal. A couple of ideas that are worth hitting on:

• What your company does and how it’s different from existing solutions to pressing problems.
• Existing market gaps and how your product covers them.
• The importance of your product in your industry and how it improves the industry.
• Existing resources and manpower, investment requirements, and potential limitations.

Current Performance and Financial Report

Of course, investors want to see how your business has been performing. The data and metrics around your business are generally how an investor builds conviction and further interest in your business. We suggest using your best judgment when it comes to the level of metrics or financials that you’d like to share. A couple examples of what you might share:

• Current assets and liabilities
• MVP presentation for companies still in the ideation stage
• Appendix with financial reports

Related Resource: ​​ Building A Startup Financial Model That Works

Existing Investors and Partners

Inevitably investors will want to know who else you have raised capital from and partnered with in the past. Include a brief description of the different investors you have on your cap table and be ready to field additional questions if they have any.

Pro tip: The first place an investor will go to when performing due diligence is your current investors. Make sure you have a strong relationship and good communication with your current investors.

Market Study and Sales Goals

Investors will also care about your customer acquisition efforts and want to make sure you can repeatably find and close new customers. A couple of things that might be important to include in this section:

• Product pricing and information
• Revenue targets and goals
• Customer acquisition model and efforts
• Sales and marketing related KPIs
• Stories or testimonials from happy customers

Current Valuation, Investment Requirements, and Expected Returns

This is an opportunity to lay out your cap table and explain your current valuation, investment requirements, and what future valuations could look like. As always, we suggest using your best judgment when it comes to what level of detail you’d like to share about your cap table.

Potential Pitfalls and Solutions

There is an inherent risk when investing in any startup. It is important to make sure potential investors are aware of this. Layout the common pitfalls your startup might face and stop you from achieving your goals. Next, lay out the solutions to these problems and how you plan to tackle them if/when they arise.

8 Startup Funding Proposal Samples and Templates

Below are 8 proposal templates to help you kick off your next fundraise. Note that some of these are technically investor updates and not designed for first-time fundraising. Keep in mind that a startup funding proposal could also be utilized for additional funding after the first round of funding.

1. An Investment Summary Template by Underscore VC

Underscore VC is a seed-stage venture fund based out of Boston. As the team at Underscore writes :

“As part of this, we strongly recommend you write out a pitch narrative before you start to build a pitch deck. “Writing the prose forces you to fill in the gaps that can remain if you just put bullets on a slide,” says Lily Lyman, Underscore VC Partner. “It becomes less about how you present, and more about what you present.”

This exercise can help you synthesize your thoughts, smooth transitions, and craft a logical, compelling story. It also helps you include all necessary information and think through your answers to tough questions.

Check out the template here .

2. The Visible “Standard” Investor Update Template

Our Standard investor update template is great for communicating with existing investors. If you are regularly sending Updates to their investors they should know when you are beginning to raise capital again and can almost be treated as an investment proposal.

Check out the template for our standard investor update template here .

3. Sharing a Fundraising Pitch via Video

Videos are a great way to give the right context to the right investors in a concise and quick way. Video is a great supporting tool for any other information or documents you might be sending over. For example, you can include a few charts or metrics and some company information and use the video to further explain the data and growth plans. Check out the template here .

4. Financial Funding Proposal

The team at Revv put together a plug-and-play financial funding proposal. As they wrote, “A funding proposal must provide details of your company’s financials to obtain the right amount of funding. Check out our funding proposal template personalized for your business.” Check out the template here .

5. Investor Proposal Template for SaaS Companies

The team at Revv put together a template to help founders grab the attention of investors. As they wrote, “With so many Investing Agencies, this Investor proposal will surely leave an impact on your company in the long run.” Check out the template here .

6. Startup Funding Proposal Sample

Template.net has created a downloadable funding proposal template that can be edited using any tool. As they wrote, “Get your business idea off the ground by winning investors for your business through this Startup Investment Proposal. Fascinate investors with how you are going to get your business into the spotlight and explain in vivid detail your goals or target for the business.” Check out the template here .

7. Simple Proposal Template

Best Templates has created a generic proposal template that can be molded to fit most use cases. As they wrote, “Use this Simple Proposal Template for any of your proposal needs. This 14-page proposal template is easily editable and fully customizable using any chosen application or program that supports MS Word or Pages file formats.”

8. Sample Investment Proposal for Morgan Stanley

Another example is from the team at Morgan Stanley. The template is commonly used by their team and can be applied to most proposal use cases.

Connect With More Investors and Tell Your Story With Visible

Being able to tie everything together and build a strategy for your fundraise will be an integral part of your fundraising success. Check out how Visible can help you every step of the way below:

Visible Connect — Finding the right investors for your business can be tricky. Using Visible Connect, filter investors by different categories (like stage, check size, geography, focus, and more) to find the right investors for your business. Give it a try here .

Pitch Deck Sharing — Once you’ve built out your target list of investors, you can start sharing your pitch deck with them directly from Visible. You can customize your sharing settings (like email gated, password gated, etc.) and even add your own domain. Give it a try here .

Fundraising CRM — Our Fundraising CRM brings all of your data together. Set up tailored stages , custom fields , take notes, and track activity for different investors to help you build momentum in your raise. We’ll show how each individual investor is engaging with your Updates, Decks, and Dashboards. Give it a try here .

Outside USA: +1‑607‑330‑3200

Startup Funding and Finance Cornell Certificate Program

Overview and courses.

Have a great idea for a startup but don’t know where to begin?

This certificate program is designed to give both entrepreneurs and new investors the skills needed to evaluate the viability of business concepts and markets, navigate the pitching process, and ultimately gain an understanding of how to receive and invest from a variety of sources. This program will cover investments from equity investors, angel investors, venture capitalists, crowdfunders, economic development centers, and grants.

In this certificate program, you will learn how to find the right match for your opportunity or investment style, and what goes into delivering and assessing a successful business pitch. You will also explore how to protect your interests as the company is being structured, how to assign a fair valuation to the opportunity, and how to perform due diligence as the financing process moves from investor interest to actually closing the deal. Finally, you will examine the strategies for keeping entrepreneur/investor relations alive and healthy long after the deal has closed.

The courses in this certificate program are required to be completed in the order that they appear.

Course list

Assessing startup viability and funding options.

Every startup has an element of risk. Whether you are an entrepreneur or a new investor, you need to be able to articulate a business model and evaluate how it would fit with an investor type so you can identify good opportunities for investment.

In this course, you will complete a strategy framework that will help you assess the viability of a startup. By assessing and evaluating the total available market and served available market, you will conduct a target market estimate to project your product or service's potential market size. You will also create a milestone chart that helps you identify the human and capital resources necessary to launch a startup. Your compilation and review of this work will help you evaluate the specific type of investment your project needs.

• Pitching Your Business Opportunity

In this course, you will learn how to navigate the process of pitching a startup investment opportunity in order to gain investor interest. Through opportunities to both build and evaluate a pitch, both entrepreneurs and investors will gain insight into each other's perspective. In this course, you will analyze a real-world pitch to see how closely it conforms to the recommended format for a great pitch. You will then select three potential investors online and explain why they would make a good fit with your own or a selected opportunity. Finally, you will build a partial pitch deck based on selected key concepts, and then partner with a peer from your cohort to deliver, evaluate, and strengthen those pitch deck slides. By the end of this course you will have the confidence you need to create or assess a startup pitch.

You are required to have completed the following course or have equivalent experience before taking this course:

• Startup Viability and Funding Options
• Protecting Your Interests

In order to safeguard the opportunity or investment before the deal is closed, certain steps like incorporation, structuring future investment, and creating a term sheet serve as protection for the interests of both parties. These assets and processes lend structure to the deal.

In this course, you will recognize the tradeoffs, risks, and implications of different legal investment structures and determine the right time and circumstances for switching those structures. Working with a sample startup, you will identify both appropriate and inappropriate forms of incorporation for the opportunity. You will determine the most appropriate legal structures for both non-equity and equity investment scenarios. You will then identify which sources of investment should be sought at the different phases of the business cycle. Finally, you will list the documentation required at each business cycle phase to close the deal.

You are required to have completed the following courses or have equivalent experience before taking this course:

Financial Planning, Valuation and Dilution

To evaluate an investment opportunity, savvy investors rely on a company's records of its ownership percentages, equity dilution, and the value of equity issued in each round of financing. These records are kept in a company's capitalization table, or cap table, which is a record of the different rounds of investment.

In this course, you will utilize and complete a cap table template to create and record a sample startup's financial records. Then, you will use the cap table to assess and analyze a series of financial outcomes based on a set of differing scenarios. Lastly, you will compute and evaluate approaches to valuation such as discounted cash flow and public market multiples based on estimates of future cash flow. This will position you to negotiate new rounds of financing and analyze the impact of new rounds on existing shareholders.

• Company Structure and Due Diligence

Before closing an investment deal, an entrepreneur needs to protect their interests, and an investor needs to verify the stability of the opportunity. This series of steps is called the due diligence process. In this course, you will create a due diligence project plan for your investment or opportunity that maps out how to get from term sheet to closing. This process includes key milestones, timeframes, a detailed understanding of key players' responsibilities, and consideration for the various types of due diligence. Then, you will compile a list of questions for the due diligence checklist, a key element of the process that outlines the questions that need to be answered and the documentation that is required to close the deal. Lastly, you will identify, review, and analyze the dozens of critical documents being exchanged that are needed to finalize the investment deal and retain for future use, protection, and reference. By completing these steps, you will be ready to determine if you should move forward or hold back on your deal.

• Financial Planning, Valuation, and Dilution

Post-Investment Best Practices

After closing a deal, it is essential that the founder maintain a strong affiliation with the investor. Continued mutual trust and communication can increase the company's chances for growth and success.

In this course, you will formulate a structure for you company that outlines the key parties and their responsibilities. You will also draft a board meeting agenda, investor update, and delegation matrix and list the characteristics of your incentive plan. Finally, you will project an index of the company records that are likely to be added one year after your investment date. By the end of this course you will have a detailed plan to help you successfully navigate your post-investment future.

How It Works

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Faculty Author

• Certificates Authored

Tom Schryver is the Executive Director of the Cornell Center for Regional Economic Advancement (CREA) and a Visiting Lecturer at the Johnson Graduate School of Management. CREA’s programs include Rev: Ithaca Startup Works, the Southern Tier Startup Alliance, and support of Cornell’s regional economic advancement efforts. Mr. Schryver leads the Upstate NY I-Corps Node and is the lead instructor for Cornell Engineering’s Commercialization Fellows program. He serves on the teaching team for eLab, Cornell’s student business accelerator, and teaches entrepreneurship and business strategy at Cornell.

Mr. Schryver is an experienced entrepreneur, having served as a startup founder and senior finance executive of high-growth companies. Previously, he was Director of Finance for the Triad Foundation, where his responsibilities included investing the Foundation’s $250m portfolio to top-quartile returns. Mr. Schryver’s board affiliations include the Cornell Agriculture and Food Technology Park and Tompkins County Area Development, and he serves as board vice-chair of the Business Incubator Association of New York State.

• Hemp Genetics and Breeding
• Intellectual Property Law Essentials
• Business Management in STEM

Startup Funding and Finance

Key course takeaways.

• Assess the viability of your startup and project its potential market size
• Evaluate investment opportunities
• Find potential sources of funding for your business
• Navigate the process of pitching and closing investors
• Assign fair valuation to a startup
• Protect your interests in the startup investment process
• Determine if you should move forward or hold back on your deal
• Navigate the post-investment landscape

Download a Brochure

What You'll Earn

• Startup Funding and Finance Certificate from Cornell Center for Regional Economic Advancement
• 60 Professional Development Hours (6 CEUs)

Watch the Video

Who should enroll.

• Entrepreneurs seeking funding for their startup
• People who have an original or disruptive idea
• Novice investors

“I feel more confident in all aspects of my job, especially those that relate to accounting and finance. This was a weakness for me previously, but the knowledge I gained through the certificate program has helped me contribute more effectively to my organization.”

“eCornell puts you in control of your education entrepreneurship. It allows you to choose what you need to learn and how you need to learn it at the right time.”

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Request Information Now by completing the form below.

Enter your information to get access to a virtual open house with the eCornell team to get your questions answered live.

Financial Projections for Startups [Template + Course Included]

January 11, 2022

Adam Hoeksema

Financial projections are an important part of any business plan or startup pitch deck. They allow a company to estimate future revenues, expenses, and profits, and to identify potential risks and opportunities.  We have been helping founders create financial projections through our templates, tools, and custom financial modeling services since 2012.  I thought it was finally time to write a comprehensive article that should answer the key questions that we get from founders again and again.  So here is what I plan to cover:

What are financial projections? 

Why should a startup create financial projections, how to create a financial forecast , creating sales projections based on data, forecasting operating expenses, salary projections.

• Startup cost forecasting

Pro forma financial statements

Existing business vs. startup vs acquisition forecasting, how to know whether my projections are realistic, what will investors and lenders be looking for in my projections, tools used for financial forecasting.

But first, who am I, and do I know anything about financial projections? 

My name is Adam Hoeksema and I am the Co-Founder of ProjectionHub.  Since 2012 we have helped over 50,000 entrepreneurs create financial projections between our software tool and our business projection spreadsheet templates . 

I didn’t spend a decade on Wall Street or make a killing in private equity, and I haven’t even raised VC funding myself.  

But I did spend over a decade launching a growing an SBA (Small Business Administration) lender in the Indianapolis, IN area.  During that time we made over 1,800 small business loans and we often asked our clients for financial projections along with their loan applications.  That is why I started ProjectionHub.  

So 10 years ago my experience was with helping small, main street businesses create projections and secure loan funding to start their dream.  Along the way, I learned a ton about startup projections for tech-based businesses as well.  Today about 50% of our work is with small businesses looking for an SBA loan and 50% is with tech-based businesses looking to raise capital from investors.  

With that background in mind, I want to share with you what I have learned along the way to try to make your financial forecasting process just a little bit easier.  Let’s dive in!

Financial projections are estimates of the future financial performance of a company. These projections are typically based on a set of assumptions and are used to help businesses plan for the future and make informed decisions about investments, financing, and other strategic matters. Most ProjectionHub customers use pro forma financials to help external stakeholders, such as investors and lenders understand a company's financial position and future prospects. Financial projections typically include projections of income, expenses, cash flow, and balance sheet items.  

There are many opinions on whether a startup needs to create a forecasted balance sheet and how many years a set of projections should be.  At ProjectionHub, all of our financial projection templates have an integrated pro forma income statement, cash flow and balance sheet in annual and monthly format for 5 years.  This seems to meet the needs of 99% of our customers, so I think it is pretty safe to say that your investor or lender might not require all of that level of information, but they probably won’t require more than a 5-year forecast of your 3 statement financials. 

So it sounds like a lot of work to create a financial forecast, so why do we create projections?  No one can know the future.  Isn’t it just a pointless exercise?  

Well, I think it is smart for an entrepreneur to create a set of projections before they start a business to understand what they are getting themselves into and what it will take to break even and generate a profit.  

I could beat that drum all day, and you know what it doesn’t really matter.  Even if we know it is a good idea to create projections before throwing our life savings into a new venture, most entrepreneurs will not create projections before starting their business.  I have just come to accept this!  

So the real reason to create projections is because the people with the money, the investors and lenders ask for them.  

• Investors will ask for a financial model because they want to see how you plan to use their money, how long you think it will last, and what the potential return could be. 
• Lenders will ask to see financial projections for startups or new projects or divisions in a business because they want to be able to see whether you think you can pay them back or not.  How does your debt service coverage ratio look? How many cups of coffee are you going to have to sell to make your monthly loan payment? 

Now that we know why we are creating projections and who the audience is, let’s get into the “how.”

So the plan now is to walk through how to create a set of financial projections, how to do good research to take a data-driven approach when modeling, what tools you can use to help you with research, and then how to know whether your forecast is realistic once you are done.   We are going to look at:

• Creating revenue projections
• Operating Expenses
• Salaries Forecasting
• How to get investor and lender-ready projections

Revenue Projections

This is where we will camp out for a while.  I want to show you a few examples of different types of revenue models to show you how I approach creating revenue projections.  

If you have a stable, existing business, then it is possible that the best approach to creating sales projections is simply to take last year’s numbers and apply a growth rate based on your expectations of growth.  Since that approach is quite straightforward I am not going to spend any time on that today. Our Existing Business Forecast Template will be perfect for you in this scenario.  

We are going to focus on more of a first principles approach.  I am going to outline two different approaches that I often take when building a financial model.  First a capacity approach and then a customer funnel approach.  

Capacity-Based Revenue Projections

I use a capacity-based approach to revenue projections when a company is pretty certain to have demand for their products or services and their revenue is more of a function of your price x capacity.  

Here are some examples of businesses where I would take a capacity-based approach. 

Farming Projections

For a farm, your revenue forecast is going to be based on how many acres you are farming x the yield per acre x the price per unit for your crop.  You don’t really need to worry about whether you have a customer or not.  Since most crops are commodities you won’t need to find a customer, you simply sell into the ready made market at the market price. 

Trucking Projections

Trucking is similar in the sense that as long as you have a valid license and a working truck, you will be able to find loads to deliver.  The question is more about how many trucks do you have, how many miles per day can each truck drive and what price will you be able to earn per mile.  Again this is about capacity and price, not whether or not you can find a customer.  This is the approach we take to show how a trucking business with one truck can generate $400k in annual revenue . 

Daycare Facility

A daycare facility will also be able to calculate a capacity based on the size of the facility and the teacher-to-student ratio requirements.  Once you have your capacity it is mostly a function of pricing to determine your revenue forecast.  You can see a screenshot from our daycare financial forecast tool to see how we think about modeling this type of business. 

I would say most tech businesses do not fall into a capacity-based projection approach. 

For tech companies, I typically use a customer funnel-based approach to forecasting revenue. 

Customer Funnel-Based Revenue Projection Approach

These are companies where your customer might not even know your product or service exists and might not know that they want it or need it so you are going to have to really go out and market and sell.  You will likely have a customer funnel that will have leads that convert into customers over time.  

Here are some examples of business models where I would use a customer funnel approach to financial modeling. 

B2B SaaS Projections

For a B2B SaaS product you will probably have an advertising budget and a sales team that will drive leads that your team will work to qualify.  Then some percentage of those sales qualified leads will turn into customers.  You will need assumptions for things like:

• A monthly ad budget 
• Cost per click to attract a website visitor
• Percentage of website visitors that become sales qualified leads
• Percentage of sales qualified leads that the sales team converts into customers
• Average monthly spend per customer

DTC Product Forecasting

For direct to consumer product companies you will have a similar customer funnel.  Once you get to a customer, then you might have assumptions like:

• Average order value
• % of customers that become repeat customers
• How often do repeat customers repurchase

Consumer Apps 

For a consumer mobile app you will need assumptions for things like:

• Monthly ad budget
• Cost per download
• Organic / word of mouth downloads
• % of customers that download the app that convert into active users
• % of active users that churn each year
• Average monthly spend per active user per month

So this should give you an idea of the structure of assumptions that you will need in order to approach creating projections, but I just left you with a bunch of assumptions that you have no idea how to fill in with realistic data.  

Next I want to show you what I would do in order to research and find good data for your sales projections. 

So how do you know how many people are searching on Google for terms that are relevant to your product or service?  How do you know how much it would cost to advertise and get a click for that term?  How do you know what a reasonable conversion rate is from a website visitor to a customer?  How do you know what the average order value is for an ecommerce business like yours, etc? 

I recorded an entire course on this , but I have listed some tools and some slides below to show you my typical research process. 

As you will notice in the slides, I start out be simply doing Google research to try to find reasonable assumptions for as many of the key assumptions as I can.  

From there, I like to use the following tools:

• Ahrefs - I use this tool for competitor research to determine how much organic traffic my competitors are getting and thereby how much organic traffic my website might get over time. 
• Google Trends - I use Google Trends to see seasonality trends in a business. 
• Google Adwords Keyword Tool - I use this tool to forecast how much it will cost per click to attract a website visitor, and to see search volume for certain keywords.
• Bizminer - You can use Bizminer industry reports to get an idea of key industry ratios to get an idea of whether your projections are realistic for your industry. 

When forecasting expenses I like a couple of different resources to help me forecast my expenses and ensure that my expense projections are within industry standards. 

Expenses for Small Businesses

Bizminer - You can use Bizminer industry reports to get an idea of key industry ratios.  For example, you can determine if the average company in your industry spends 10% on rent or 12% on rent. 

Expenses for Tech Startups

SaaS Capital - You can use this report from SaaS Capital to get an idea of the spending categories as a % of revenue for tech companies.  This is specifically focused on SaaS, so if you are in ecommerce or a hardware startup you will need to find a similar source for your industry.  You can see an example of the expense ratios from SaaS Capital below:

When forecasting salaries I actually take two different approaches.  I typically start out by projecting specific salaries and positions for the first 24 months of the projection.  Then after that, I simply include salaries in larger buckets of operating expenses like General & Admin, R&D, and Sales & Marketing.  When you are raising investment the investors will likely want to know your specific use of funds for the first 18 to 24 months, but after that they will understand that it is impossible to predict exact positions, timing and salaries, so transitioning to an expense as a % of revenue makes sense.  You can see how this looks in one of our financial models for a B2B SaaS company : 

Detailed Salary Projections for the First 24 Months:

Salaries included in operating expense categories as a percentage of sales for year 3 and beyond:

Startup Cost Forecasting

When forecasting your startup costs, your specific location, concept, size and scale of business will make a dramatic difference in what it costs to launch your business.  I don’t recommend that you just take the first “average startup cost” number that you find in a Google search because your specific situation matters.  You will need to do your own research for each startup cost, but I have actually found it helpful to use ChatGPT to ask for a list of common startup expenses for business XYZ so that I don’t forget any common expenses. 

I have already mentioned this before, but I commonly take a different approach to creating projections for an existing business compared to a startup compared to modeling a business acquisition.  

Existing Business Projections

When modeling a projection for an existing business I like to use our existing business budgeting template that allows me to enter in historical revenue and expenses and use that as a baseline to build a forecast by increasing or decreasing expenses and revenue based on my plans. 

Startup Projections

For a startup, I would use one of our 70+ industry specific financial projection templates and start from the ground up.  You would use the research process outlined in this article to create your projections. 

Forecasting a Business Acquisition

For creating projections for a business that you are looking to acquire I would use our acquisition financial model which will allow you to enter in historical financials from the target business, but it will also allow you to make adjustments to the balance sheet and revenue and expenses for a post acquisition pro forma. You can’t simply use the existing balance sheet and income statement because both will likely change quite a bit after the sale of the business.

Finally, I wanted to show you some example pro forma statements so that you can see what the end product should look like.  

Pro forma P&L Example

Here is an example of our 5 year pro forma income statement. 

Pro forma Balance Sheet Example

Here is an example of our 5 year pro forma balance sheet. 

Once you have a complete set of projections (if you are using a ProjectionHub template) I would suggest taking a look at the profit and loss at a glance table as seen below: 

In this example, I am looking at projections for a technology company that is looking to raise investment.  So a couple of things that I would look at for a tech company pro forma.  

• The first year should probably be a loss because that is why you are looking to raise investment right?  I would just make sure you are assuming that you will raise enough investment to cover that first year loss.  
• Next I would look at how fast revenue is growing.  For an investable company there is a rule of thumb “triple, triple, double, double” which means after investment an investor will be hoping that you triple sales the first 2 years and then double sales the following two years.  This is really hard to do, so if you are forecasting that you will do 10x every year you are probably off base! 
• For tech startups you can look at this study with our partner Story Pitch Decks where we looked at what is a reasonable projection for a tech startup .  This study will show you what other similar companies are projecting, so that you can ensure that whatever you project will fall within the norms that investors see. 

Investors and lenders will likely be looking at the following numbers and ratios to make sure your projections seem to be reasonable:

• Gross Profit Margin
• Profit Margin
• Debt Service Coverage Ratio
• Comparing to industry averages
• Do revenue projections, units sold make sense?
• Does your balance sheet balance?
• When do you reach breakeven?
• Do you have room for error?

I suggest that you simply Google these things and make sure your numbers seem “normal.”  For example, if you are opening a coffee shop you could Google “average profit margin for a coffee shop” and you would probably find our article on coffee shop profit margins .  Confirm that your forecasted profit margins are in line and reasonable. Do this same exercise with each of these key ratios and numbers.  

As a thank you for reading this behemoth of an article, you can download our free financial projection template .  Other tools that I utilized or mentioned in the article include:

• Ahrefs - For competitor research
• Google Trends - For seasonality trends
• Google Adwords Keyword Tool - For search volume and cost per click
• Bizminer - For industry expense ratios
• ProjectionHub Pro Forma Templates - You can use our library of templates built specifically for over 70 unique industries and business models. 

If you would like to learn more about my process for creating financial projections, you can watch this course that I put on for tech startups looking to create investor-ready financial projections. 

Insert Webinar video below

Well I hope this has been helpful to you.  If you have specific questions please feel free to reach out directly to us at [email protected]  

About the Author

Adam is the Co-founder of ProjectionHub which helps entrepreneurs create financial projections for potential investors, lenders and internal business planning. Since 2012, over 50,000 entrepreneurs from around the world have used ProjectionHub to help create financial projections.

Other Stories to Check out

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In this article we are going to walk through how to finance a small business acquisition and answer some key questions related to financing options.

How to Acquire a Business in 11 Steps

Many people don't realize that acquiring a business can be a great way to become a business owner if they prefer not to start one from scratch. But the acquisition process can be a little intimidating so here is a guide helping you through it!

Have some questions? Let us know and we'll be in touch.

The Bank of America Institute for Women's Entrepreneurship at Cornell

Deborah Streeter

Dr. Deborah Streeter is the Bruce F. Failing, Sr. Professor of Personal Enterprise and Small Business Management in the Charles H. Dyson School of Applied Economics and Management, which is part of the Cornell SC Johnson College of Business. Dr. Streeter’s teaching and research activities are focused on entrepreneurial marketing and strategy, digital innovation and women in leadership. She is the Faculty Director for the Bank of America Institute for Women’s Entrepreneurship at Cornell. Dr. Streeter is also author of several Certificate Programs on Women in Leadership offered through eCornell.

Dr. Streeter received the MERLOT Award for Exemplary Online Learning Resources in 2010, the Olympus Innovative Educator Award in 2007, and was named a Stephen H. Weiss Presidential Fellow in 2000, the highest teaching honor at Cornell University. Dr. Streeter holds an M.S. (1980) and Ph.D. (1984) in Agricultural Economics from the University of Wisconsin Madison. In 2008, Dr. Streeter founded Prendismo, LLC, a business that helps its clients accelerate innovation by capturing and sharing business insight and knowledge using digital media. The company also houses the Prendismo Collection, the world’s premier collection of more than 17,000 digital video assets on business, leadership and entrepreneurship.

Dr. Streeter is Faculty Director for the Institute and is the author of two of the Institute’s courses:  Creating your Own Venture and Communication, Negotiation and Persuasiveness.

Celia Bigoness

Professor Celia Bigoness is an Associate Clinical Professor of Law and founder of the Entrepreneurship Law Clinic, Cornell’s first transactional law clinic. In addition to teaching the Entrepreneurship Law Clinic, Professor Bigoness teaches Introduction to Transactional Lawyering and organizes the annual Cornell Law School Transactional Lawyering Competition. Professor Bigoness was the recipient of the 2018 Anne Lukingbeal Award, in honor of outstanding commitment to the women of Cornell Law School.

Before joining Cornell, Professor Bigoness spent seven years practicing corporate law at Sullivan & Cromwell LLP in New York, London and Paris. Her experience includes project finance, leveraged finance, capital markets and mergers & acquisitions.

Professor Bigoness received her J.D. from Yale Law School (2006), where she was editor-in-chief of the Yale Journal of International Law, and her A.B. from Harvard (1999).

Professor Bigoness is the author of the Institute's course:  Laying the Legal Building Blocks for your Venture

Susan Fleming

At the time of creating this course material, Dr. Susan S. Fleming was a Senior Lecturer at the Cornell School of Hotel Administration. Currently, she is an executive educator and frequent speaker on women in leadership and entrepreneurship, a corporate director, an active angel investor and a mom. Fleming began her career on Wall Street, where over a period of twelve years she held various positions in the investment community, including that of analyst at Morgan Stanley & Co.; vice president of Insurance Partners, L.P., a $540 million private equity fund; and partner at Capital Z Financial Services Partners, a $1.85B private equity fund.

After retiring from Wall Street in 2003, Fleming began work as an educator, teaching executives, investment professionals, MBAs, and undergraduates in the areas of corporate finance, insurance, valuation, and gender bias. She also enrolled at Cornell University's Johnson Graduate School of Management to pursue a PhD in management, where her research focused on better understanding the factors contributing to a dearth of women in leadership positions in U.S. society.

In addition to her work as an educator, researcher, and business consultant, Fleming helped to found a startup company in Ithaca, NY; has served on the board of directors of five publicly traded insurance and reinsurance companies, two private companies, and three non-profit organizations; and currently serves on the board of RLI Corp., a publicly traded specialty insurer serving diverse, niche property, casualty and surety markets, and Virtus Investment Partners, Inc., a publicly traded asset management firm.  Fleming holds a BA from the University of Virginia, and an MS and PhD in management from Cornell University.

Dr. Fleming is the author of the Institute's course:  Funding Your Venture & Business Planning

Tasha Lewis

Dr. Tasha Lewis, is an Associate Professor in the Department of Fiber Science & Apparel Design and teaches in the area of fashion design management. Her research interests include the disruptive impact of technology in the apparel industry, the behavior of fashion brands, global and domestic apparel production ("glocalization") issues, and the significance of social responsibility and sustainability throughout the apparel supply chain. Dr. Lewis has also worked in the apparel industry in areas of production, sourcing, and retail operations and maintains ongoing contact with industry professionals to inform her research. She is a faculty fellow of Cornell’s Atkinson Center for a Sustainable Future and the Cornell Institute of Fashion and Fiber Innovation. Lewis received her B.A. and M.S. from The Ohio State University and her Ph.D from Cornell University.

Dr. Lewis is the author of the Institute's course:  Product Development and Digital Marketing

Professor Risa Mish is professor of practice of management at the Johnson Graduate School of Management. She designed and teaches the MBA Core course in Critical and Strategic Thinking, in addition to teaching courses in leadership and serving as faculty co-director of the Johnson Leadership Fellows program.

She has been the recipient of the MBA Core Faculty Teaching Award, the Apple Award for Teaching Excellence, the "Best Teacher Award", selected by the graduating class of the Cornell-Tsinghua dual degree MBA/FMBA program offered by Johnson at Cornell and the PBC School of Finance at Tsinghua University, the Stephen Russell Distinguished Teaching Award and the Globe Award for Teaching Excellence. Professor Mish holds a B.S. (1985) from Cornell University and J.D. (1988) from Cornell University Law School.

Professor Mish is the author of the Institute's course:  Growth Leadership for Female Entrepreneurs

A Comprehensive Guide to Funding Your Entrepreneurial Venture

So, you've got your million-dollar idea, a burning passion to change the world, and the drive to build your own empire. But there's one major hurdle standing in your way: the lack of funding. Don't fret! Every successful entrepreneur has faced this daunting challenge at some point, and we're here to guide you through the labyrinth of financing options.

In this comprehensive guide, we'll break down everything you need to know about funding your entrepreneurial venture, from traditional bank loans and angel investors to crowdfunding and government grants. Whether you're a visionary tech genius or a brilliant artisan, we'll equip you with the knowledge and strategies to secure the capital you need to bring your dreams to life. Let's dive into the wild and wonderful world of entrepreneurial funding together!

Understanding the Importance of Funding for Entrepreneurs

• Funding is crucial for entrepreneurs as it provides the necessary resources to turn ideas into reality.
• It enables entrepreneurs to invest in research and development, product design, and marketing efforts, giving them a competitive edge.
• Adequate funding allows entrepreneurs to scale their business, expand into new markets, and seize growth opportunities.
• It provides financial stability during the early stages when revenue may be limited and costs are high.
• Funding also helps attract top talent and build a strong team, which is vital for long-term success .
• Without sufficient funding, entrepreneurs may struggle to navigate challenges, pivot their strategies, or sustain operations.

Example: A tech startup securing funding can develop and launch their innovative product faster, gaining an advantage over competitors in a rapidly evolving market.

Different Types of Entrepreneurship Funding

• Bank Loans : Entrepreneurs can secure loans from banks by providing collateral or opting for unsecured loans with higher interest rates.
• Angel Investors : Wealthy individuals who invest their own money into startups in exchange for equity or a stake in the company.
• Venture Capitalists : Professional investors who provide funding to startups in exchange for equity, typically at the early or growth stages.
• Crowdfunding : Entrepreneurs can raise funds from a large number of individuals through online platforms like Kickstarter or Indiegogo.
• Bootstrapping : Funding the venture with personal savings or revenue generated by the business.
• Grants : Non-repayable funds provided by government or private organizations to support specific projects or industries.
• Business Incubators : Organizations that provide startups with resources, mentorship, and sometimes funding in exchange for equity.
• Government Programs : Various programs and initiatives offered by government entities to support entrepreneurship and innovation.

Traditional Funding Methods

Bank loans are a common funding option for entrepreneurs. These loans allow business owners to borrow money from financial institutions for their ventures. The amount and terms of the loan depend on factors such as creditworthiness and the business's financial health. Bank loans can be secured or unsecured, with secured loans requiring collateral. They provide entrepreneurs with the necessary capital to start or expand their businesses.

However, obtaining a bank loan can be challenging, as banks often require a strong credit history and a detailed business plan. It is important for entrepreneurs to thoroughly research and compare different loan options to find the best fit for their needs.

a. Secured Loans

Secured loans are a common form of entrepreneurship funding where entrepreneurs provide collateral to obtain the loan. This collateral can be assets like property, inventory, or equipment. By offering collateral, entrepreneurs reduce the risk for lenders, making it easier to secure the loan. The amount of loan you can obtain depends on the value of the collateral. If you're unable to repay the loan, the lender can seize and sell the collateral to recover their money.

Secured loans often have lower interest rates compared to unsecured loans, making them a favorable option for entrepreneurs with valuable assets to put up as collateral.

b. Unsecured Loans

Unsecured loans are a type of entrepreneurship funding that does not require collateral. These loans are based on the borrower's creditworthiness and ability to repay. They provide flexibility for entrepreneurs to use the funds as needed without risking personal assets. However, unsecured loans often come with higher interest rates and stricter eligibility criteria.

It is important for entrepreneurs to carefully evaluate their financial situation and repayment capabilities before opting for this funding method.

For example, a startup looking to expand its operations quickly may consider an unsecured loan to cover marketing expenses and inventory purchases.

Angel Investors

Angel investors are an important source of funding for entrepreneurs. These individuals, often successful business people themselves, provide capital to promising startups in exchange for equity or ownership in the company. Here are some key points about angel investors:

• Angel investors typically invest their own money, making the funding process faster and more flexible compared to traditional methods.
• They often bring valuable expertise, connections, and mentorship to the table, helping entrepreneurs navigate challenges and accelerate growth.
• Angel investors may participate in multiple rounds of funding, providing ongoing support as the business evolves.
• The investment amounts from angel investors can vary widely, ranging from relatively small seed investments to larger sums in later stages.
• Entrepreneurs can find angel investors through networks, industry events, online platforms, or by building relationships with mentors and advisors.

Remember, securing funding from angel investors requires a compelling business plan and a strong pitch that demonstrates the potential for high returns on their investment.

Venture Capitalists

Venture capitalists are investors who provide funding to high-growth potential startups in exchange for equity ownership. They typically invest in early-stage or growth-stage companies with a strong business model and market potential.

These investors bring not only capital but also valuable industry expertise, mentorship, and networking opportunities. Working with venture capitalists can provide entrepreneurs with the necessary resources to scale their businesses rapidly.

However, it's important for entrepreneurs to carefully choose venture capitalists who align with their vision and values, as they will have a significant influence on the direction of the company. Entrepreneurs should also be prepared to give up a portion of their ownership and be open to the expectations and demands of venture capitalists as they work towards building a successful venture.

Crowdfunding

Crowdfunding is a popular avenue for entrepreneurs to secure funding for their ventures. This method involves raising small amounts of money from a large number of individuals through online platforms. Here are some key insights and examples related to crowdfunding:

• Crowdfunding allows entrepreneurs to tap into a large pool of potential investors who are interested in supporting innovative projects.
• Online platforms provide entrepreneurs with the opportunity to showcase their business ideas and attract backers from around the world.
• Successful crowdfunding campaigns often offer unique rewards or incentives to entice individuals to contribute, such as exclusive early access to products or personalized experiences.
• Examples of successful crowdfunding campaigns include projects in various industries, including technology, fashion, and food.
• While crowdfunding can be a viable funding option, entrepreneurs need to invest time and effort into creating compelling campaigns and engaging with their supporters to maximize their chances of success.

Alternative Funding Methods

Bootstrapping.

Entrepreneurship funding can often be challenging, but bootstrapping offers a viable option for self-reliant entrepreneurs. Bootstrapping refers to starting and growing a business without external funding or relying on personal savings and revenue generated from initial sales. It encourages resourcefulness and careful financial planning.

Bootstrapping allows entrepreneurs to maintain full control over their business decisions and equity. It fosters creativity and innovation, as limited resources prompt entrepreneurs to find cost-effective solutions. Successful examples include creating minimum viable products, leveraging existing networks for partnerships, and utilizing free or low-cost marketing channels. However, it's crucial for entrepreneurs to carefully manage cash flow and prioritize revenue-generating activities to ensure sustainable growth.

Grants are a valuable source of funding for entrepreneurs. These funds, typically offered by government agencies or private foundations, support business development and innovation. Unlike loans, grants do not need to be repaid, making them an attractive option for startups. Entrepreneurs can find grants tailored to specific industries, such as technology or healthcare. For instance, a tech startup may apply for grants that promote research and development in their field.

Additionally, grants often come with additional benefits like mentorship or access to resources, enhancing the overall support for entrepreneurs. Researching and applying for grants can open doors for entrepreneurs seeking financial backing for their ventures.

Business Incubators

Business incubators are a valuable resource for entrepreneurs seeking funding. These organizations provide a supportive environment and essential resources to help startups flourish. Incubators offer mentorship, networking opportunities, and access to funding sources like venture capitalists and angel investors. They often provide office space and shared resources, reducing overhead costs for entrepreneurs.

Moreover, incubators may offer educational programs and workshops to enhance business skills.

For example, a technology-focused incubator may provide access to specialized equipment or labs. Joining a business incubator can significantly increase the chances of securing funding and accelerate the growth of entrepreneurial ventures.

Government Programs

Government programs offer valuable resources and support for entrepreneurs seeking funding:

• Research and Development Grants : Government agencies provide grants to fund innovative research and development projects, enabling entrepreneurs to access capital for product development and improvement.
• Small Business Administration (SBA) Loans : The SBA offers loans with favorable terms and lower interest rates to support small businesses. These loans can be a viable option for entrepreneurs looking to secure funding for their ventures.
• State and Local Grants : Many governments offer grants to startups and small businesses, focusing on specific industries or targeted economic development initiatives. These grants can provide the necessary capital to launch or grow a business.
• Incubator and Accelerator Programs : Government-sponsored incubators and accelerators offer mentorship, networking opportunities, and funding to support early-stage startups. These programs help entrepreneurs navigate challenges and accelerate their growth.

Government programs play a crucial role in supporting entrepreneurship by providing various funding options and resources tailored to the needs of startups and small businesses.

Choosing the Right Funding Option

Assessing financial needs.

Assessing financial needs is a vital step in funding your entrepreneurial venture. Begin by determining the specific amount required to launch or grow your business. Consider various factors like production costs, marketing expenses, and personnel salaries. Conduct thorough market research to understand industry standards and competitive pricing.

Additionally, analyze your cash flow projections to gauge how much funding you'll need and when. By accurately assessing your financial needs, you can approach potential investors or lenders with a clear plan and demonstrate your understanding of the resources necessary for success.

Researching Funding Sources

Researching funding sources is a crucial step in securing funds for your entrepreneurial venture. Start by identifying potential investors, including angel investors, venture capitalists, and crowdfunding platforms. Look for investors who have previously funded startups in your industry or similar ventures. Research their investment criteria, preferences, and track record. Analyze their funding terms, such as equity requirements and expected returns.

Additionally, explore government programs, grants, and business incubators that align with your business goals. Gathering information on funding sources ensures you approach the right investors and maximize your chances of success.

Evaluating the Terms and Conditions

When evaluating the terms and conditions of entrepreneurship funding, it is important to thoroughly analyze the following aspects:

• Interest rates : Compare the interest rates offered by different funding sources to determine the most cost-effective option.
• Repayment terms : Assess the repayment schedule and consider the feasibility of meeting the required payments within your business's financial capabilities.
• Collateral requirements : Understand if the funding option requires collateral and evaluate the potential risks associated with providing such security.
• Equity ownership : Determine if the funding source demands a share in your business and assess the implications of giving up ownership.
• Additional fees : Consider any additional fees that may be applicable, such as application fees or early repayment penalties.

By carefully evaluating these aspects, you can make an informed decision about which funding option aligns best with your entrepreneurial goals.

Seeking Professional Guidance

Seeking professional guidance can greatly benefit entrepreneurs in navigating entrepreneurship funding. Experts in finance, investment, and business can provide valuable insights, identify potential funding sources, and offer strategic advice on securing capital. They have a deep understanding of the funding landscape and can help entrepreneurs align their funding goals with the right investors or lenders.

Additionally, professionals can assist in preparing a compelling funding proposal, highlighting key elements investors look for, such as financial projections and market analysis. Remember, professional guidance can save time, provide industry expertise, and enhance the chances of securing funding for your entrepreneurial venture.

Preparing a Solid Funding Proposal

Executive summary.

The executive summary is a concise overview of your business plan and serves as an introduction to potential investors. It should provide a clear and compelling summary of your venture, highlighting its unique value proposition. Here's how to craft an effective executive summary for your entrepreneurship funding proposal:

• Succinctly describe your business concept and target market.
• Highlight your competitive advantage and how you plan to differentiate yourself.
• Include a summary of your financial projections and potential returns.
• Showcase your management team's expertise and track record.
• Convey your funding requirements and how the investment will be utilized.

Remember, the executive summary is your opportunity to make a strong first impression and generate interest in your venture. Keep it concise, engaging, and compelling to captivate potential investors.

Market Analysis

Market analysis is a vital component when seeking entrepreneurship funding. It involves evaluating the target market, competition, and potential customer base. By conducting thorough market research, entrepreneurs can identify market trends, customer preferences, and potential gaps to exploit. This helps investors understand the market's potential profitability and the viability of the business venture.

Market analysis also assists in crafting a compelling funding proposal by showcasing a deep understanding of the industry and how the business fits within it. It provides insights into market size, growth projections, and competitive advantages. Conducting a comprehensive market analysis enables entrepreneurs to position their venture strategically and attract potential investors.

Financial Projections

Financial projections are an integral part of any entrepreneurship funding proposal. They provide potential investors with a clear picture of the venture's financial potential and growth prospects. When preparing your projections, it is important to be realistic and provide a detailed breakdown of revenue and expenses. Demonstrating a solid understanding of your market and a thoughtful approach to financial management can instill confidence in investors. Utilize industry research and comparable companies to support your projections. Investors want to see a clear path to profitability, so make sure to include a realistic timeline for reaching key financial milestones.

Management Team

The Management Team is a vital consideration when seeking entrepreneurship funding. Lenders and investors want to see a capable team with relevant skills and expertise. Highlight the qualifications and experience of your team members, emphasizing how their backgrounds complement the venture's goals. Show that your team has the ability to execute the business plan effectively.

For example, if you are starting a technology company, having a seasoned CTO with a track record in successful product development can instill confidence in funders. A strong management team increases the likelihood of securing funding, as it demonstrates the ability to navigate challenges and drive the venture towards success.

Exit Strategy

An exit strategy is a crucial consideration for entrepreneurs seeking funding. It outlines how investors will recoup their investments and potentially make a profit. Having a well-defined exit strategy demonstrates foresight and can increase investor confidence. Common exit strategies include an initial public offering (IPO), acquisition by a larger company, or a management buyout.

Entrepreneurship Funding Resources

Small business administration (sba).

The Small Business Administration is a valuable resource for entrepreneurs seeking funding. It offers various programs and initiatives to support small businesses in obtaining financing. For instance, the SBA provides loan programs with favorable terms, such as lower interest rates and longer repayment periods. These loans can be used for various purposes, including starting a new business, expanding operations, or purchasing equipment.

Additionally, the SBA offers counseling and training services to help entrepreneurs navigate the funding process successfully. By leveraging the resources offered by the SBA, entrepreneurs can increase their chances of securing the necessary capital to fuel their ventures' growth.

National Venture Capital Association (NVCA)

The National Venture Capital Association (NVCA) is a prominent organization in the field of entrepreneurship funding. It serves as a valuable resource for both entrepreneurs and venture capitalists. The NVCA provides networking opportunities, industry research, and educational programs to help entrepreneurs navigate the funding landscape. By joining the NVCA, entrepreneurs gain access to a network of experienced professionals who can provide guidance and potential investment opportunities.

Additionally, the NVCA advocates for policies that support entrepreneurship and innovation.

AngelList is a popular online platform that connects startups with potential investors. Entrepreneurs can create a detailed profile highlighting their business idea, team, and funding needs. Investors can browse through these profiles and choose to invest in companies that align with their interests. This platform not only provides access to funding opportunities but also offers valuable networking and mentorship connections.

By leveraging AngelList, entrepreneurs can tap into a vast network ofinvestors and increase their chances of securing funding for their entrepreneurial ventures.

Kickstarter

Kickstarter is a popular crowdfunding platform for entrepreneurs seeking funding for their projects. It allows individuals to showcase their ideas and raise funds from a wide network of supporters. Entrepreneurs can create compelling campaigns, set funding goals, and offer incentives to backers. Kickstarter provides a platform for entrepreneurs to validate their ideas, build a community of supporters, and secure the necessary funds to bring their projects to life.

Successful projects on Kickstarter range from innovative tech gadgets to creative arts and crafts. By leveraging Kickstarter's reach and crowdfunding model, entrepreneurs can tap into a diverse pool of potential investors who believe in their vision.

Wrapping up

Starting a new business can be an exciting yet daunting venture. In order to successfully launch your entrepreneurial dream, you need to secure adequate funding. This comprehensive guide provides valuable insights into various funding options available to entrepreneurs, including traditional bank loans, venture capital, angel investors, and crowdfunding.

It advises on the importance of creating a solid business plan, building a reliable network, and presenting a compelling pitch to potential investors. Furthermore, it highlights alternative financing alternatives like bootstrapping and small business grants. By offering a range of funding strategies and tips, this guide equips aspiring entrepreneurs with the knowledge they need to secure the financial support necessary to turn their business ideas into reality.

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Venture capital and entrepreneurship

Module information>.

Venture capital has been the driving force behind some of the fastest growing sectors of today’s economy.

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Companies famous for receiving venture capital or business angel funding, early in their development include Apple, Microsoft, Google and Amazon. From an entrepreneurial perspective, venture capital is a significant source of investment for innovative entrepreneurs with attractive growth prospects, including start-ups in the information technology, life sciences and advanced engineering sectors.

Therefore, it is essential that entrepreneurs and business managers understand strategies, tools and techniques in securing venture capital finance. One topic of the module explores globalisation of the venture capital industry (e.g. China, the Middle East, India).

This module is intended for those interested in how funding is obtained from venture capital firms by entrepreneurs, and also how those working within the industry make and manage investments. It sits alongside the Entrepreneurial Finance and Private Equity module which takes a broad look at the production and analysis of company financial information for entrepreneurs, and the range of debt and equity financing methods available.

Topics covered

• The Venture Capital Circle
• Investment Strategy & Deal Sourcing
• Evaluation & Decision Making Process
• The Entrepreneur’s Journey
• Company Valuations
• Deal Structuring
• Post-Investment and Exit
• Return Measurements & Performance Drivers
• The Globalisation of the VC industry
• The Impact of VC on Society

Learning outcomes

If you complete the module successfully, you should be able to:

• understand the history of private equity and venture capital and describe the current regulatory and ethical challenges the venture capital industry faces.
• recognise how venture capital varies across different parts of the world.
• understand the role of venture capital in supporting the entrepreneurial process and company growth.
• explain the venture capital cycle and the structure of a venture capital fund and how the structure varies for businesses in different stages.
• explain how company valuations are set and how the investment deal is negotiated and structured.
• demonstrate the screening and the due diligence processes and the factors that govern venture capitalist investment decisions.
• critically discuss and evaluate how venture capital firms measure the performance and optimize returns from their investments.
• demonstrate how an entrepreneur with a start-up business plan would seek to obtain venture capital investment.
• critically appraise opportunities from a venture capitalist perspective, and demonstrate how suitable investments are identified.
• determine how venture capitalists evaluate, monitor and enhance business opportunities.
• construct arguments based on the interpretation of quantitative data.
• demonstrate effective written communication skills for formulating business plans, strategies and outcomes.
• demonstrate time management skills (including working under time pressure).
• apply analytical, problem-solving and decision making skills (including determining how venture capital firms would decide an investment deal).
• synthesise and use company valuation information and knowledge about venture capital effectively in the entrepreneurial sector.
• gain research, digital and information literacy skills.

This module is assessed by:

Coursework (50% weighting):

• There is one item of coursework for this module which contributes to the final assessment mark for this module.
• Coursework: a written essay of a maximum of 2,000 or 2,500 words (deadline – weeks 9-12) The coursework is designed to check student progress, extend and reinforce concepts covered and also test individual performance.

Examination (50% weighting):

• The final piece of assessment will be an unseen written examination of 2 hours’ duration.

Essential reading

The following is provided as part of the module materials after you register:

• Lerner, J. Leamon A. and Hardymon, F., Venture Capital, Private Equity, and the Financing of Entrepreneurship, Wiley, 2012

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How to Write Your Business Plan to Secure Funding

Unlock funding for your business! Master the art of writing a funding-worthy business plan with our ultimate guide.

Introduction to Writing a Funding-Worthy Business Plan

When it comes to securing funding for your business, a well-written business plan plays a pivotal role. It serves as a roadmap that outlines your goals, strategies, and financial projections, giving potential investors or lenders a comprehensive understanding of your business. In this section, we will explore the importance of a well-written business plan and delve into the purpose it serves.

Importance of a Well-Written Business Plan

A well-crafted business plan is essential for multiple reasons. Firstly, it showcases your professionalism and commitment to your business idea. It demonstrates that you have thoroughly thought through every aspect of your venture and have a solid plan in place.

Additionally, a well-written business plan acts as a communication tool between you and potential investors or lenders. It allows you to effectively convey your business concept, market analysis, and financial projections, helping them understand the viability and potential of your business.

Moreover, a comprehensive business plan can help you identify any potential pitfalls or gaps in your strategy. By thoroughly analyzing your business model, market conditions, and financial projections, you can proactively address any weaknesses and make necessary adjustments.

Understanding the Purpose of a Business Plan

The purpose of a business plan extends beyond just securing funding. It serves as a strategic document that guides your business operations and helps you stay focused on your goals. Some key purposes of a business plan include:

• Attracting Investors and Lenders: A well-written business plan provides potential investors or lenders with the information they need to make an informed decision about whether to invest in your business or provide financial support. It showcases the potential return on investment and outlines the steps you will take to achieve success.
• Setting Clear Goals and Strategies: A business plan helps you define your short-term and long-term goals, as well as the strategies you will implement to achieve them. It provides a roadmap that keeps you on track and allows you to measure your progress along the way.
• Identifying Strengths and Weaknesses: By conducting a thorough market analysis and assessing your business's strengths and weaknesses, a business plan helps you identify areas where you excel and areas that require improvement. This enables you to develop strategies to leverage your strengths and mitigate any weaknesses.
• Guiding Financial Decision-Making: A business plan includes financial projections and analysis that help you make informed financial decisions. It provides a clear understanding of your revenue streams, costs, and potential profitability, enabling you to allocate resources effectively.
• Facilitating Collaboration and Communication: A business plan serves as a tool for collaboration and communication within your organization. It ensures that all team members are aligned with the business goals and strategies, fostering a cohesive and unified approach.

Understanding the importance and purpose of a well-written business plan is the first step towards creating a document that effectively communicates your vision and secures the funding you need. In the following sections, we will explore the key components, step-by-step guide, and best practices for crafting a funding-worthy business plan.

Key Components of a Funding-Worthy Business Plan

To create a business plan that attracts funding, it's essential to include key components that provide a comprehensive overview of your business. These components will help potential investors understand your business's potential and make informed decisions. Here are the key components you should include in your funding-worthy business plan:

Executive Summary

The executive summary is a concise overview of your entire business plan. It should provide a clear and compelling summary of your business, highlighting its unique selling proposition, market opportunities, and financial projections. This section should be written in a way that captures the attention of potential investors and encourages them to read further.

Company Overview

The company overview section provides an introduction to your business. It should include details about your company's mission, vision, and values. Additionally, this section should highlight key information such as the legal structure of your business, its history, location, and any notable achievements or milestones.

Market Analysis

The market analysis section presents a thorough examination of your target market, industry trends, and competitors. It should showcase your understanding of the market dynamics, customer needs, and competitive landscape. Including market research, data, and relevant statistics can strengthen your analysis and demonstrate the market opportunity your business intends to tap into.

Product or Service Description

In this section, you should provide a detailed description of your product or service. Explain how it addresses a need or solves a problem in the market. Include information about its features, benefits, and any unique selling points. Use this section to showcase the value proposition of your offering and differentiate it from competitors.

Marketing and Sales Strategy

The marketing and sales strategy section outlines how you plan to promote and sell your product or service. It should include your target market segmentation, pricing strategy, distribution channels, and promotional activities. Demonstrating a well-thought-out marketing and sales strategy can instill confidence in investors regarding your ability to reach and attract customers.

Organizational Structure and Management

In this section, provide an overview of your organizational structure, including key personnel and their roles. Highlight the qualifications and experience of your management team, as well as any advisors or board members. Investors want to see that your team has the expertise and capabilities to execute your business plan successfully.

Financial Projections and Analysis

The financial projections and analysis section is crucial for illustrating the financial viability of your business. Include projected income statements, balance sheets, and cash flow statements for at least the next three years. Additionally, provide a detailed analysis of your financial assumptions and key performance indicators. It's important to present realistic and well-supported financial projections.

Funding Request and Use of Funds

In this section, clearly state the amount of funding you are seeking and how you intend to use it. Break down the allocation of funds, highlighting specific areas such as product development, marketing, operations, or expansion. Providing a detailed breakdown of the use of funds demonstrates your ability to effectively utilize the investment.

The appendix section serves as a supplemental section that includes any additional information that supports your business plan. This may include market research data, product samples, patents, licenses, permits, or any other relevant documents. The appendix provides investors with access to more detailed information without overwhelming the main body of the business plan.

By including these key components in your funding-worthy business plan, you can present a comprehensive overview of your business and increase your chances of securing the funding you need to bring your entrepreneurial vision to life.

Step-by-Step Guide to Writing a Funding-Worthy Business Plan

Writing a business plan that is compelling and attractive to potential investors is a crucial step in securing funding for your venture. To help you navigate this process, here is a step-by-step guide to writing a funding-worthy business plan.

Research and Gather Information

Before diving into the writing process, it's essential to conduct thorough research and gather all the necessary information. This includes understanding your industry, target market, competitors, and potential investors. Collecting data and market insights will provide a solid foundation for your business plan.

Define Your Business and Goals

Clearly define your business and outline your goals. Describe the nature of your business, the products or services you offer, and what sets you apart from your competitors. Additionally, establish both short-term and long-term goals for your business, focusing on specific, measurable, achievable, relevant, and time-bound (SMART) objectives.

Conduct a Comprehensive Market Analysis

Perform a comprehensive market analysis to gain insights into your target market, customer demographics, and industry trends. Identify your target audience's needs, preferences, and purchasing behavior. Analyze your competitors to understand their strengths, weaknesses, and market positioning. Presenting this information in tables can help organize and present the data effectively.

Market Analysis Factors                                       Data

‍ Target Market Size

Customer Demographics

Industry Trends

Competitor Analysis

Develop a Strong Marketing and Sales Strategy

Outline a robust marketing and sales strategy that highlights how you plan to reach and attract customers. Define your unique selling proposition (USP) and outline your pricing strategy, distribution channels, and promotional activities. This section should demonstrate your understanding of your target market and how you plan to position your business in the competitive landscape.

Outline Your Organizational Structure and Management

Describe your organizational structure and management team. Provide an overview of key personnel, their roles, and their qualifications. Highlight any relevant industry experience, expertise, or accomplishments that make your team well-equipped to execute the business plan successfully. A clear and concise organizational chart can help visualize the structure.

Create Financial Projections and Analysis

Develop financial projections that estimate your business's future revenue, expenses, and profitability. Include a projected income statement, balance sheet, and cash flow statement. Use realistic assumptions based on your market research and industry benchmarks. Additionally, conduct a comprehensive financial analysis that evaluates the financial health and viability of your business.

Craft a Compelling Executive Summary

The executive summary is a concise overview of your entire business plan and should entice readers to continue reading. Summarize the key elements of your plan, including your business concept, market opportunity, competitive advantage, and financial projections. Craft a compelling and engaging executive summary that captures the attention of potential investors.

Polish and Revise Your Business Plan

Once you have completed the initial draft of your business plan, take the time to polish and revise it. Review the content for clarity, coherence, and accuracy. Ensure that your plan flows logically and presents a compelling case for investment. Proofread for grammar and spelling errors. Consider seeking feedback from trusted advisors or professionals to refine your plan further.

By following this step-by-step guide, you can create a comprehensive and compelling business plan that increases your chances of securing funding for your venture. Remember to tailor your plan to the specific needs and preferences of your target audience, providing them with all the necessary information to make an informed investment decision.

Tips and Best Practices for Writing a Funding-Worthy Business Plan

Writing a business plan that is compelling and effective in securing funding requires careful attention to detail and adherence to best practices. Here are some tips to help you create a funding-worthy business plan:

Keep it Clear and Concise

When writing your business plan, it's essential to communicate your ideas clearly and concisely. Avoid using unnecessary jargon or technical terms that may confuse your readers. Use straightforward language and structure your content in a logical manner. Remember, clarity and simplicity are key to ensuring that your business plan is easily understood by potential investors.

Tailor Your Plan to the Target Audience

Each business plan should be tailored to the specific needs and expectations of the target audience. Consider the preferences and priorities of potential investors or lenders and customize your plan accordingly. For example, venture capitalists may be more interested in growth potential and return on investment, while traditional lenders may focus on cash flow and collateral. Understanding your audience will allow you to highlight the aspects of your business that are most relevant to them.

Support Claims with Data and Research

To instill confidence in your business plan, it's important to back up your claims with data and research. Provide market research, industry trends, and competitive analysis to support your assertions about the viability and potential of your business. Including relevant statistics, market projections, and customer surveys can help validate your assumptions and demonstrate that your business plan is grounded in reality.

Seek Professional Help if Needed

Writing a funding-worthy business plan can be a complex and time-consuming task. If you are unsure about certain aspects or need assistance in crafting a compelling plan, consider seeking professional help. Business consultants, accountants, or industry experts can provide valuable insights and guidance to ensure that your business plan is comprehensive, accurate, and persuasive.

Remember, a well-written business plan is not only a tool for securing funding but also a roadmap for the success of your business. By following these tips and best practices, you can increase your chances of creating a business plan that effectively communicates your vision and attracts the attention of potential investors or lenders.

Q: What is a funding-worthy business plan?

A: A funding-worthy business plan is a comprehensive document that outlines your business concept, market opportunity, competitive advantage, financial projections, and other key components to attract potential investors or lenders.

Q: What are the key components of a funding-worthy business plan?

A: The key components of a funding-worthy business plan include an executive summary, company overview, market analysis, product or service description, marketing and sales strategy, organizational structure and management, financial projections and analysis, funding request and use of funds, and appendix.

Q: How long should my business plan be?

A: While there is no strict rule on the length of a business plan, it's generally recommended to keep it concise and focused. A typical business plan can range from 15 to 30 pages. However, the most important thing is to provide all the necessary information in a clear and compelling manner.

Q: Do I need professional help to write my business plan?

A: While you can certainly write your own business plan with careful research and attention to detail, seeking professional help can provide valuable insights and guidance. Business consultants, accountants or industry experts can offer specialized knowledge that can enhance the quality of your business plan.

Q: How often should I update my business plan?

A: Your business plan should be viewed as a living document that evolves over time. It's recommended to review and update your plan regularly to reflect changes in your industry or market conditions. You may need to update it annually or even more frequently if significant changes occur in your business operations or financial performance.

By addressing these frequently asked questions about writing a funding-worthy business plan in your document or during presentations with investors or lenders can demonstrate that you have thoroughly thought through the planning process.

As an entrepreneur seeking funding for your business, a well-crafted and comprehensive business plan is essential. By following the step-by-step guide outlined in this article, you can create a funding-worthy business plan that effectively communicates your vision, market opportunity, competitive advantage, and financial projections to potential investors or lenders. Remember to tailor your plan to the specific needs and expectations of your target audience, keep it clear and concise, support claims with data and research, and seek professional help if needed. With a compelling business plan in hand, you'll be one step closer to turning your entrepreneurial dreams into reality.

https://blog.hubspot.com/sales/how-to-write-business-proposal

https://www.etu.org.za/toolbox/docs/finances/proposal.html

https://www.mybusiness.com.au/how-we-help/grow-your-business/increasing-sales/how-to-write-a-funding-proposal

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Venture Capital Financial Modeling

Blog > venture capital financial modeling, table of content, introduction, i. understanding venture capital, ii. the importance of financial modeling, iii. building a venture capital financial model, iv. income statement modeling, v. balance sheet modeling, vi. cash flow statement modeling, vii. scenario analysis, viii. sensitivity analysis, ix. presenting your model, x. the importance of professional help, our other categories.

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Reading Time : 14 Min

Raising capital.

Venture capital (VC) can be a game-changer for startups, providing the much-needed capital to fuel growth and innovation. However, attracting VC investments requires more than a compelling pitch; it demands a rock-solid venture capital financial model . In this comprehensive guide, we’ll delve into the world of VC financial modeling, helping startups like yours prepare for success.

Venture capitalists (VCs) are investors who provide funding to startups and early-stage companies. They seek high returns and are willing to take calculated risks. To secure VC funding, startups must align with VCs’ investment criteria. These criteria typically include:

• Team: VCs invest in people as much as ideas. A strong, capable team is a top priority.

Example: Let’s take the hypothetical startup “TechGenius,” developing cutting-edge AI solutions. TechGenius assembled a diverse team of data scientists, engineers, and business development experts.

• Market: VCs look for startups targeting large, growing markets.

Example: Suppose TechGenius identifies a market opportunity in healthcare AI. The global healthcare AI market is projected to reach $45 billion by 2026.

• Scalability: Successful startups must have the potential to scale rapidly.

Example: TechGenius’s AI solutions can be applied to various industries, from healthcare to finance, demonstrating scalability.

Stellar Business Tip: When seeking VC funding, ensure your team is not only competent but also well-balanced, covering key roles such as technology, marketing, and finance.

VCs rely heavily on financial models when evaluating investment opportunities. These models help VCs understand a startup’s growth potential, profitability, and risk. Here’s why financial modeling is crucial:

• Projection of Financial Performance: Models project a startup’s financial performance over time, usually three to five years.

Example: TechGenius’s financial model forecasts revenue growth of 300% over the next three years, driven by its AI solutions’ market demand.

• Risk Assessment: VCs assess the risks associated with the investment by scrutinizing the model’s assumptions and outputs.

Example: TechGenius acknowledges market competition as a risk and provides a risk mitigation strategy in its model.

• Alignment with Strategy: Models guide strategic decisions by providing insights into cash flow, burn rate, and financing needs.

Example: TechGenius uses its financial model to plan R&D investment and marketing campaigns in alignment with its revenue targets.

Stellar Business Tip: Ensure your financial model aligns with your long-term strategic goals. A model that reflects your business’s mission and vision will resonate better with investors.

A VC financial model is a comprehensive representation of a startup’s future financial health. Here’s a step-by-step guide to building one:

• Gather Historical Data: Start with your startup’s historical financial data, including revenue, expenses, and previous investments.

Example: TechGenius begins by documenting its past two years of financial performance, including expenses related to research, development, and marketing.

• Market Research: Conduct thorough market research to support your growth projections. Understand your target market’s size, trends, and competition.

Example: TechGenius performs a market analysis, identifying key competitors, market size, and growth potential. This research informs its revenue projections.

Stellar Business Tip: Use multiple sources for market research to ensure your data is accurate and up-to-date. Cross-referencing information can reveal hidden opportunities.

• Choose a Modeling Tool: Select a suitable financial modeling tool. Many startups use Excel due to its flexibility, while others opt for specialized software.

Example: TechGenius chooses Excel due to its widespread use and availability of templates suited to financial modeling.

Stellar Business Tip: Invest time in learning your chosen modeling tool thoroughly. Proficiency can save time and reduce errors during modeling.

The income statement is a crucial part of your VC financial model. It forecasts your startup’s revenue and expenses over a specific period. Key components include:

• Revenue Projections: Estimate revenue streams based on market research, pricing strategy, and sales forecasts.

Example: TechGenius predicts that its AI solutions will generate revenue through subscription-based licensing to healthcare providers.

• Operating Expenses: Detail all operating expenses, such as salaries, marketing, and administrative costs.

Example: TechGenius’s operating expenses include salaries for its data science team, digital advertising costs, and office rent.

• Gross Margin: Calculate the gross margin, a key indicator of profitability.

Example: TechGenius closely tracks its cost of goods sold (COGS) to calculate its gross margin accurately.

Stellar Business Tip: Clearly label and document your assumptions in the income statement. Transparency can build trust with investors.

The balance sheet provides a snapshot of your startup’s financial health at a given point. It includes:

• Assets: List current and non-current assets, including cash, inventory, and intellectual property.

Example: TechGenius lists its AI software as an intangible asset, assigned a value based on development costs and market potential.

• Liabilities: Detail short-term and long-term liabilities, such as loans and accounts payable.

Example: TechGenius includes a short-term loan it secured to fund a marketing campaign in its liabilities.

• Equity: Explain the startup’s equity structure, showing how funding rounds impact equity.

Example: TechGenius illustrates how equity was allocated during its seed funding round, demonstrating the investor’s equity stake.

Stellar Business Tip: Keep your balance sheet updated regularly to track changes in your financial position accurately.

The cash flow statement tracks cash inflows and outflows over a specific period, ensuring your startup remains solvent. Its key sections include:

• Operating Activities: To calculate net cash flow from products, operating activities should account for inventory purchases and sales revenue.

Example: If you’ve acquired new machinery, include its cost and any revenue it generates in this section.

• Investing Activities: Covers cash flows related to investments in assets or securities.

Example: When TechGenius acquires new servers to support its AI software, it’s considered an investing activity.

• Financing Activities: Records cash flows from fundraising, debt, or equity transactions.

Example: If TechGenius secures a venture capital investment, it’s classified as a financing activity. Include the amount and any terms associated with it.

Stellar Business Tip: A cash flow shortage can spell trouble for startups. Use your cash flow statement to identify potential shortfalls and plan accordingly.

VCs appreciate startups that anticipate challenges and have contingency plans. Conduct scenario analysis by adjusting key assumptions to see how they affect your financial projections.

Example: Create scenarios for a best-case, worst-case, and base-case scenario. How does a delay in product launch impact your financials? What if your customer acquisition costs are higher than expected?

Stellar Business Tip: Be prepared to discuss these scenarios with potential investors. Demonstrating your flexibility and adaptability can instill confidence.

Sensitivity analysis takes scenario analysis further by quantifying the impact of changing a single variable while keeping others constant.

Example: If your revenue is sensitive to changes in pricing, adjust your pricing assumptions and observe the resulting impact on cash flow.

Stellar Business Tip: Understand which variables have the most significant impact on your financial model. Focus your sensitivity analysis on these key drivers.

Once your VC financial model is complete, presenting it effectively to investors is crucial. Here’s how to do it:

• Executive Summary: Begin with a concise executive summary that highlights the key points of your model.

Stellar Business Tip: Use bullet points to make your summary easy to skim. VCs often receive numerous pitch decks; a clear summary can pique their interest.

• Detailed Presentation: During presentations or meetings, walk investors through your model. Explain your assumptions, highlight important metrics, and be prepared to answer questions.

Stellar Business Tip: Practice your presentation thoroughly. Confidence and clarity can leave a lasting impression.

Creating a robust VC financial model can be challenging, especially for first-time entrepreneurs. Consider seeking professional help from experts like Stellar Business Plans .

Stellar Business Tip: An experienced consultant can provide valuable insights, help you avoid common pitfalls, and fine-tune your financial model for success.

Mastering venture capital financial modeling is essential for startups looking to secure VC funding. A well-structured financial model not only attracts investors but also guides strategic decisions. By following the steps outlined in this guide, you’ll be well-prepared to create a compelling financial model that opens doors to growth and success.

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Updated On : September 3, 2023

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