The pitch deck has become a crucial tool for attracting investors. That’s because an effective pitch deck not only communicates the “what” and “how” of your startup but also emphasizes the “why.” What is the driving force behind your venture? Why should investors believe in your vision?
During this past decade, with venture exuberance running rampant – spurned by low interest rates and the pandemic-era digital demand – a good story pitched well was enough.
However, venture investors are now – thankfully – becoming more selective about how we deploy capital.
As a result, founders should prioritize building robust financial models over pitch decks to set themselves up for long-term success.
Still Start With Narrative
A pitch deck and a financial model both start with a compelling narrative.
Without a clear and coherent narrative, your story can easily become a collection of disconnected points. Crafting a narrative forces you to think critically about the core messages you want to convey.
A narrative helps you create a structured framework. Always start with crafting your narrative.
However, once you’ve done that, resist the temptation to open Google Slides and instead start with Google Sheets.
The lore of the pitch deck and the theatre of the demo day are receding into the background and are being replaced with the rigors of building a thoughtful financial model.
Deeper Understanding of Business Dynamics
A financial model is a comprehensive representation of your startup’s financial performance, projecting revenues, expenses, profits, and other key financial metrics into the future.
By constructing a financial model, you’ll gain a profound understanding of your business dynamics, including revenue drivers, cost structures, and capital requirements.
This deeper insight enables you to make more informed decisions about pricing strategies, resource allocation, and growth opportunities, and to effectively communicate those critical details to investors.
Realistic Assessment of Viability
While pitch decks highlight your startup’s potential upside, they often downplay or ignore potential risks and challenges. On the other hand, a well-constructed financial model forces you to confront these challenges head-on and to avoid wearing rose-colored glasses when meeting with investors.
By modeling different scenarios, you can identify potential pitfalls and understand the impact of external factors on your business’s viability.
Strategic Planning and Resource Allocation
A financial model is not just a static document; it’s a dynamic tool that allows you to simulate different strategies and scenarios. This capability enables you to optimize resource allocation and make strategic decisions based on data-driven insights.
A financial model provides the necessary framework to communicate important hypotheses about the practical steps required to grow your business and to highlight your conviction behind the myriad judgment calls every founder needs to make.
Investor Confidence and Credibility
With venture funding retracting relative to the past decade, and a new wave of pre-seed and seed stage investors insisting on due diligence beyond a few conversations over cocktails and peering into a data room, a thoughtful financial model provides the evidence and credibility that savvy investors are looking for.
A well-constructed financial model demonstrates that you have thoroughly thought through your go-to-market strategy, understand the key drivers of success, and have a clear plan to achieve real results.
Pitch decks may win you an investor meeting. Financial models get funded.
While pitch decks remain an important tool for communicating your vision and potential, founders should recognize the immense value of financial models as a strategic asset.
Financial models provide founders with a deeper understanding of your business, a realistic assessment of viability, the ability to plan strategically, and they enhance investor confidence.
Rather than fretting over color palette, icons, fonts and graphics, open up Google Sheets and share your compelling narrative with a thoughtful financial model.