Guidance

Track 1: Financial Model Essentials

Published 2 December 2025

PREPARING FOR INVESTMENT 

FINANCIAL MODEL ESSENTIALS 

This support material is designed to guide founders, CFOs and leadership teams in creating robust, credible financial models that meet investor expectations and withstand due diligence scrutiny. A well-constructed financial model is more than just numbers, it tells the story of how your business makes money, manages costs, mitigates risk and scales profitably over time.  

Investors rely heavily on financial models to evaluate your company’s past performance, growth potential and operational discipline. They want transparency about your revenue streams, cash flow runway, cost structure and team resourcing, demonstrating that you know these gives them confidence that you can execute your business plan and make smart use of their investment. 

By following this guide, you will be better equipped to build a financial model that clearly aligns with your business strategy, demonstrates operational readiness, stands up to due diligence and provides transparency that investors demand, making your fundraising journey smoother and more effective. 

Best practice approach 

Building a robust financial model from the ground up, means ensuring every figure, assumption and forecast is transparent, defensible and grounded in real-world data. The model should be developed using a bottom-up approach, capturing all key revenue and cost drivers, with a detailed assumptions log that explains the sources, logic and rationale behind each input. 

Sensitivity analyses, such as exploring the impact of launch delays, cost overruns, or slower customer acquisition, are essential for identifying key risk areas, quantifying headroom requirement as demonstrating business resilience. 

Simple tips: 

• Try to keep all the key assumptions on one tab.   

• Avoid hard coding cells where possible. If you are hardcoding, highlight the cell to make it clear it is not formula linked.   

• Add notes to explain the rationale and source of each assumption.   

• Regular mock due diligence sessions with advisors can help test the model’s credibility, identify weaknesses and refine assumptions.   

1. Historic and forecast Profit and Loss (P&L), Balance Sheet (BS) and cash flow 

What it is:   

Your detailed financial accounts covering at least 2 years of historic data and 5 years forecast, including revenues, gross margin progression, operating expenses (OPEX), EBITDA, cash flow runway, breakeven analysis and funding requirements. 

Why it is essential to include:   

Investors will review historic performance against forecasts and budgets to assess your track record of achieving forecasts. If you typically overestimate growth, they may discount your projections accordingly and will certainly seek to understand the narrative about why you haven’t achieved forecasts. 

Historic trading and KPI’s are also the most tangible indicator of how the business is performing and what the key paint points and bottlenecks are, these are therefore a good indicator of what assumptions, KPIs and sensitivities should be included in the forecasts. If you are assuming that, for example, growth is going to be significantly higher or production timeframes will be significantly shorter than they have been historically, you will need to point to what has changed to make this improvement deliverable and ideally provide evidence of this. 

2. Revenue models 

What it is:   

Your revenue model is a breakdown of all revenue streams (hardware sales, data subscriptions, services), explanations of revenue recognition policies, growth strategy narrative and a view of diversity of customer base. 

Your revenue model is the framework that explains how the business will make money, in other words, where its income comes from and how it’s generated over time. 

It describes who pays, what they’re paying for, how much they pay and how often they pay. A good revenue model links directly to the startup’s value proposition and market strategy, showing how the company converts its product or service into predictable, scalable income. 

Common revenue models include: 

• Subscription model: recurring payments (e.g. SaaS or data services)   

• Transaction or commission model: taking a percentage of each sale or deal   

• Licensing model: charging others to use intellectual property or technology   

• Usage-based model: customers pay according to consumption or activity level   

• Service or consulting model: income from one-off projects or retainers   

• Freemium model: basic access is free, premium features generate revenue   

Why it is essential to include:   

Investors want clarity on how and when money comes in, what drives growth and proof that revenue does not depend on a single customer or speculative future product. For investors, the revenue model shows how the business plans to achieve profitability, the predictability of income and the scalability of growth. 

Investors typically value recurring, highly visible revenues more highly than transactional revenues (e.g. one-off or non-recurring project or product sales). 

3. Revenue bridge 

What it is:   

A Revenue Bridge is a visualisation of the source and timing of future revenues including probability-weighted opportunity estimates. It connects your sales funnel and pipeline directly to forecast revenues. Essentially it is a tool or model that explains how your revenue changes over time, usually from one period to the next (e.g. from one year to the next, or from current performance to forecast). 

It “bridges” the gap between past or current revenue and future projected revenue, showing the key factors that drive the change. 

Typical elements in a revenue bridge include: 

• Opening revenue (starting point, e.g. last year’s revenue)   

• Additions (new customers, new products, price increases, upsells)   

• Reductions (lost customers, contract expiries, pricing changes, churn)   

• Closing revenue (the forecast or target number)   

Why it is essential to include:   

For startups and scaleups, a revenue bridge shows transparency and realism in your sales process and helps investors and management understand what’s driving growth, how realistic the assumptions are and whether revenue increases come from scaling the customer base, improving pricing, or expanding markets. 

4. Revenue pipeline 

What it is:   

A revenue pipeline represents the flow of potential sales opportunities moving through your commercial process, from lead generation to closed deals. 

It’s often visualised in stages (e.g. prospect → qualified lead → proposal → negotiation → closed/won), with estimated deal values and probabilities attached to each stage. 

For startups and scaleups, the revenue pipeline helps to: 

• Forecast future revenue based on realistic conversion rates   

- Identify where deals are stalling or progressing   

• Prioritise high-value or high-probability opportunities   

- Demonstrate to investors that there’s a structured, repeatable sales process in place   

Why it is essential to include:   

A revenue pipeline is essential for investors because it turns revenue forecasts into evidence-based projections. It shows that a business’s growth is grounded in real opportunities, with named prospects, deal values and conversion probabilities, rather than assumptions. A strong pipeline demonstrates market traction, a repeatable sales process and commercial discipline, giving investors confidence in the team’s ability to execute and scale. In short, it proves that future revenue is both visible and credible, reducing perceived risk and increasing investability. 

5. Unit economics 

What it is:   

Unit economics refers to the revenue and costs associated with a single unit of your product or service, helping a business understand how profitable (or not) each sale is. It breaks the business down to its smallest meaningful unit, for example, one customer, one transaction, or one subscription, to measure the fundamental profitability and scalability of the model. 

In simple terms, it answers the question ‘How much do we earn and how much do we spend, per customer or unit sold?’ 

Common measures include: 

• Customer Acquisition Cost (CAC): How much it costs to acquire one customer   

• Customer Lifetime Value (LTV): The total revenue a customer generates over their relationship with the business   

• Contribution margin: Revenue per unit minus variable costs per unit   

As your business scales there will be changes in cost, revenue and therefore margin on your product or service so unit economics allows you to do analysis of how unit costs scale with growth. 

Why it is essential to include:   

For investors, strong unit economics show that each sale adds value and that scaling the business will create profit rather than amplify losses. In early-stage startups, credible unit economics are a key signal of whether the model can become self-sustaining as it grows. Investors probe these to understand cost-effectiveness of acquiring and retaining customers and how efficiently your business can grow. 

6. Resourcing 

What it is:   

Resourcing refers to how a business allocates and manages the people, skills and tools needed to deliver its product, grow the business and achieve milestones. It covers both human resources (employees, contractors, advisors) and operational resources (technology, infrastructure, partners, suppliers). 

Good resourcing ensures the right capabilities are in place at the right time, for example: 

• Hiring key roles (engineering, sales, finance) in line with growth plans   

• Using external partners where it’s more efficient than in-house work   

• Balancing short-term flexibility with long-term capability building   

Why it is essential to include:   

For investors, a solid resourcing plan shows that the startup understands what skills and capacity it needs to execute its strategy and how additional capital will be deployed effectively. It shows investors whether a startup has the right people, skills and capacity to deliver on its growth plan. It demonstrates execution capability, capital efficiency and scalability, giving investors confidence that the business can turn strategy into results with the resources available. This must be coherent with the growth plan narrative! 

7. Cost base 

What it is:   

The cost base is the total set of ongoing expenses a business incurs to operate, essentially, the financial foundation of its business model. It includes both: 

• Fixed costs (e.g. salaries, rent, software subscriptions): Expenses that stay constant regardless of output  

• Variable costs (e.g. materials, transaction fees, customer support):Costs that scale with growth  

• Capital costs (e.g. acquisition of plant & machinery, or development costs which are capitalised): These costs will not appear on your P&L, but they are a cash outgoing which needs to be considered  

A clear understanding of the cost base helps a business: 

• Manage cash burn and runway   

- Identify where efficiencies can be gained   

• Forecast future profitability and funding needs   

Why it is essential to include:   

For investors, a transparent cost base signals financial discipline and helps assess whether the business’s growth plan is efficient and sustainable. It helps investors understand how much it costs for the startup to operate and grow and reveals spending discipline, cash runway and the path to profitability, showing whether the company can scale sustainably and use investor capital efficiently. 

8. Risk model 

What it is:   

A risk model for a startup is a structured framework written into your financial narratives and models used to identify, assess and manage potential threats that could impact the company’s ability to achieve its goals. It helps founders and investors understand where the business is most exposed, financially, operationally, technically, or legally and what measures are in place to mitigate those risks. It also covers “unknowns” or uncertainties and how potential investors could assist in managing these risks. 

A strong risk model typically includes: 

• Risk identification: Listing key risks (e.g., funding gaps, regulatory hurdles, supply chain issues, key-person dependency, technology failure)   

• Risk assessment: Scoring or ranking each risk by likelihood and impact   

• Mitigation strategies: Outlining actions to reduce or manage each risk (e.g., insurance, redundancy planning, diversification, compliance controls)   

• Ownership and monitoring: Assigning responsibility and tracking changes as the business grows  

In short, a risk model turns uncertainty into something visible, measurable and manageable, showing that the company understands and can control its exposure.   

Why it is essential to include:   

A risk model is important for investors because it shows that a business understands its vulnerabilities and has clear strategies to manage them. It demonstrates maturity, transparency and operational discipline, key indicators of a well-run business. By identifying and mitigating risks in advance, businesses reduce uncertainty, build investor trust and make the opportunity more attractive. In essence, a solid risk model helps investors see that the company is prepared, resilient and capable of protecting their capital. Investors expect founders to acknowledge challenges proactively and show they have realistic plans or contingencies in place.  

Investors evaluate risk management to understand downside protections and whether their capital might be at undue risk. Clear risk articulation coupled with mitigation enhances investor confidence.  

9. Pitfalls to avoid 

Investors fund teams who understand their numbers. Avoid unrealistic assumptions, hidden logic and vague spending plans. A credible, transparent and flexible financial model signals that your business is well-managed, data-driven and ready for growth capital. Here are some common financial modelling mistakes that undermine investor confidence and jeopardise funding rounds.  

• Overly optimistic revenue forecasts   

Projecting rapid, unrealistic growth without supporting evidence is one of the biggest red flags. Investors want to see data-backed, achievable assumptions, not “hockey-stick” curves with no proof of traction or conversion rates.   

• Ignoring cash flow, runway and working capital cycles   

Many startups focus only on profit and loss but fail to model cash flow timing, when cash actually enters and leaves the business. This leads to surprises around burn rate and funding needs. Failing to account for payment lags, supplier terms, or stock turnover can leave you running out of cash even when “profitable” on paper. Cash is what keeps the business alive, not paper profit. This is especially problematic for government or long sales cycles where cash timing mismatches profits.    

• Weak link between assumptions and outcomes   

A good model should be transparent and traceable, investors must be able to see where numbers come from. Hidden formulas, hard-coded values, or untested assumptions undermine credibility.  

• Unexplained cost step-changes   

Sudden jumps in costs or headcount without clear justification raise red flags. Every OPEX or CAPEX increase should tie to a specific operational milestone (e.g., market entry, product release, or funding round). Investors want to see cost growth linked to strategy, not arbitrary spikes.    

• Treating grants as core revenue   

Grants and public funding can support innovation but are not predictable or repeatable income streams. Treating them as recurring revenue distorts performance and inflates sustainability. Investors separate one-off funding from commercial traction.  

• No connection between strategy and financials   

Your financial model must reflect your operational reality (headcount, sales pipeline, pricing and milestones). If the story and the numbers don’t match, investors will question your understanding of your own business.  

• Ignoring unit economics   

Failing to model revenue and cost per customer or transaction leaves investors unable to judge scalability. Strong unit economics prove that each sale contributes positively to growth and margin improvement.  

• Underestimating costs (especially OPEX)   

Startups often underestimate ongoing operating costs such as recruitment, compliance, or marketing. Investors spot this quickly, it signals poor planning and can make your runway look artificially long.   

• No sensitivity or scenario analysis   

Investors expect to see best, base and worst-case scenarios. A model that can’t flex for changes in price, conversion, or cost assumptions shows a lack of preparedness and risk awareness.  

• Not updating models regularly   

Static models suggest the founders aren’t tracking reality. Investors expect financial models to evolve with new data, revenue wins, delayed hires, or shifting costs, demonstrating discipline and control.  

• Complexity over clarity   

An overly complicated spreadsheet packed with unnecessary detail frustrates investors. Clarity beats cleverness, simple, well-structured models are easier to trust and faster to evaluate.    

• No clear use of funds or milestone linkage   

Investors want to see exactly how funding unlocks measurable progress.

This information is a non-exhaustive summary of some of the factors which may be relevant to seeking investment in the space sector. Persons should take independent legal and professional advice before seeking any such investment.