financial-modeling

name	financial-modeling
description	Prepares founders for all financial, use-of-funds, and fundraising mechanics questions from investors. Covers unit economics, valuation methodology, how much to raise, financing instruments, burn rate management, exit strategy, and fundraising execution. Use proactively when a founder mentions unit economics, CAC, LTV, burn rate, runway, valuation, SAFEs, convertible notes, use of funds, financial projections, or any investor question about numbers. Also trigger for "how do I value my company", "how much should I raise", "what are my unit economics", "am I default alive", or building the financial section of a data room or pitch deck.
used_by	["revenue-modeler","investor-agent","business-analyst"]

Financial Modeling & Fundraising Mechanics — Founder OS

Prepares you for every investor financial and fundraising question. Seven components: unit economics, valuation, how much to raise, financing instruments, burn management, exit strategy, and fundraising execution.

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Component 1: Unit Economics (The Numbers Investors Ask First)

Investor questions: "What are your per-customer acquisition costs?" / "Customer LTV?" / "Key metrics?" / "Profit margins?"

The 10 Numbers You Must Know Cold

Before any investor meeting, know these without looking them up:

1.  Monthly recurring revenue (MRR): $[X]
2.  Number of paying customers: [X]
3.  Average revenue per user (ARPU): $[X]/month
4.  Monthly churn rate: [X]%
5.  CAC by channel: $[X] (paid), $[X] (organic), $[X] (blended)
6.  Customer LTV: $[X]
7.  LTV:CAC ratio: [X]:1
8.  Gross margin: [X]%
9.  Monthly net burn rate: $[X]
10. Months of runway: [X]

Core Formulas

CAC = Total sales & marketing spend ÷ New customers acquired in same period

LTV = ARPU × Gross margin % × (1 ÷ Monthly churn rate)

• Example: $200 ARPU × 75% margin × (1 ÷ 3% churn) = $5,000 LTV

LTV:CAC = LTV ÷ CAC

• Target: 3:1 or higher
• Below 1:1: You lose money on every customer — unsustainable
• Above 10:1: You're underinvesting in growth

Payback period = CAC ÷ (Monthly ARPU × Gross margin %)

• Target: Under 12 months for SaaS
• Under 6 months: Very healthy
• Over 18 months: Cash flow problem at scale

Net Revenue Retention (NRR) = (Starting MRR + Expansion - Churn - Contraction) ÷ Starting MRR

• Target: 100%+ (expansion offsets churn)
• Best-in-class: 120%+ (customers grow faster than they churn)
• Below 80%: Existential problem

SaaS Benchmark Reference

Metric	Seed Acceptable	Series A Target	Best-in-Class
Gross margin	60%+	70%+	80%+
Net revenue retention	90%+	100%+	120%+
Logo churn (monthly)	<5%	<3%	<1%
LTV:CAC	2:1+	3:1+	5:1+
CAC payback	<18 months	<12 months	<6 months

Unit Economics Diagnostic Prompt

MY METRICS:
- MRR: $[X]
- Customers: [X]
- ARPU: $[X]/month
- Monthly churn: [X]%
- Total sales + marketing spend last month: $[X]
- New customers last month: [X]
- Gross margin: [X]%
- Cash in bank: $[X]
- Monthly expenses: $[X]

Calculate:
1. CAC (blended)
2. LTV
3. LTV:CAC ratio
4. CAC payback period (months)
5. Net burn rate
6. Runway (months)
7. NRR if I have expansion data: [paste]

Then benchmark each metric against SaaS norms.
Which metric most concerns you? What's the fastest way to improve it?

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Component 2: Valuation Methods

Investor questions: "What is your pre-money valuation?" / "How are you determining it?"

How Seed Valuations Actually Work

Seed valuations are set by the market (supply and demand of investor interest), not by financial models. A discounted cash flow analysis on a pre-revenue startup is not credible. Investors know this.

What actually drives seed valuation:

• Team quality and founder-market fit
• Market size (must be believably large — $1B+ TAM)
• Traction (MRR growth, user growth, notable customers)
• Competitive dynamics (are other investors already interested?)
• Recent comparable deals

2025 Seed Valuation Reference Ranges

Stage	Typical Pre-Money	Typical Round
Pre-product / pre-revenue	$2–5M	$250K–$750K
MVP live, early users	$4–8M	$500K–$1.5M
Early revenue ($5K–$30K MRR)	$6–15M	$1M–$2.5M
PMF signals ($30K–$100K MRR, growing fast)	$12–25M	$2M–$5M

Key Valuation Terms

Term	Definition	Example
Pre-money valuation	Company value BEFORE new money	$5M
Post-money valuation	Pre-money + new investment	$5M + $1M = $6M
Investor ownership	New investment ÷ Post-money	$1M ÷ $6M = 16.7%
Dilution	% existing shareholders lose	Each existing share = 16.7% less valuable

Common mistake: Saying "I'm raising $1M at a $5M valuation so investors get 20%." That's wrong. At $5M pre-money + $1M = $6M post-money, investors get 16.7%, not 20%.

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Component 3: How Much to Raise and Use of Funds

Investor questions: "How much are you trying to raise?" / "How will funds be allocated?" / "What milestones?"

The YC Rule of Thumb

Raise enough to reach your next "fundable milestone" with 12–18 months of runway.

Formula: Monthly burn rate × 18 months = Minimum raise Practical seed range: $500K–$3M Target dilution: 10–20% at seed (avoid >25%)

Use of Funds Template

## Use of Funds: $[X] Seed Round

### Engineering & Product (50-60%): $[X]
- [Engineer hire 1]: Month [X] — $[X] fully-loaded annual cost
- Infrastructure/tools: $[X]/month

### Sales & Marketing (20-30%): $[X]
- First sales/growth hire: Month [X] — $[X] annual
- Content/SEO: $[X]/month

### Operations & G&A (10-15%): $[X]
- Legal (ongoing): $[X]/month
- Tools and software: $[X]/month

### Key Milestones This Raise Gets Us To:
- Month 6: [Specific milestone — e.g., "$25K MRR"]
- Month 12: [Specific milestone — e.g., "Series A ready: $75K MRR"]
- Month 18: [Fallback / extended runway milestone]

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Component 4: Financing Instruments

Instrument Comparison

Instrument	Cost	Speed	Best For
YC Post-Money SAFE	$1–2K legal	Days	Pre-seed, seed — simplest and most founder-friendly
Convertible Note	$3–8K legal	1–2 weeks	When investors prefer debt; has interest + maturity date
Priced Equity (Series A)	$15–30K legal	4–8 weeks	When setting a clear valuation; issues preferred stock
Revenue-Based Financing	Varies	2–4 weeks	Non-dilutive; repay as % of revenue

Key SAFE Terms

Term	What It Means	Typical Range
Valuation cap	Max value at which SAFE converts	$4M–$15M at seed
Discount	% discount to next round price	10–20%
MFN	Most Favored Nation — you get best terms if later SAFEs are better	Include for early investors
Pro-rata	Right to maintain ownership % in future rounds	Standard

YC Post-Money SAFE is the default choice for seed rounds — standardized, fast, simple dilution math.

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Component 5: Burn Rate and Runway Management

The Three Numbers Investors Always Ask

Gross burn = Total monthly expenses Net burn = Monthly expenses − Monthly revenue Runway = Cash in bank ÷ Net burn

The Default Alive Test (Paul Graham)

Plot your monthly revenue and monthly expenses on the same graph for the next 24 months.

• If the lines cross (revenue > expenses) before you run out of money → Default Alive
• If the lines don't cross → Default Dead (you need to raise again — plan for it now)

Runway Rules

Runway	Status	Action
>18 months	Healthy	Focus on building milestones for next raise
12–18 months	Normal	Begin fundraising prep 3 months before you need it
6–12 months	Warning	Start fundraising now
<6 months	Danger	Emergency fundraising or cut expenses immediately

Key principle: Start the next fundraise when you have 12+ months of runway, not 6.

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Component 6: Exit Strategy

Exit Pathways

Path	Typical Timeline	Revenue Required	Best For
Acquisition (M&A)	5–10 years	$5M–$50M ARR+	Most common; plan for it
IPO	8–15 years	$100M+ ARR	High-growth category leaders
Profitable independence	3–7 years	Profitable	Bootstrap-friendly
Secondary sales	Any stage	Any	Founder/early investor liquidity

How to Talk About Exit Strategy

The right framing: "Our primary exit path is acquisition. [Company A], [Company B], and [Company C] are natural acquirers because [reason each would want our technology/customers/market position]. We've seen [recent acquisition example] validate this thesis. Our goal is to build a business worth acquiring — which gives us multiple exit options, including continued independence."

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Component 7: Fundraising Execution Playbook

YC Fundraising Rules

1. Get fundraising over as fast as possible — get back to building
2. Don't stop too soon if it's going slowly — push through
3. Breadth-first search: talk to many investors in parallel (not sequentially)
4. When someone says yes, close fast — don't let momentum die
5. Always hustle for more leads — never be in a position with only one option
6. Never burn a relationship — the world is small

Data Room Documents (Seed Round)

Document	Status
Executive summary (1-2 pages)
Pitch deck (10-12 slides, YC format)
Cap table (current + pro-forma post-round)
18-month financial model
Key metrics dashboard
Certificate of Incorporation
IP summary
Team bios

Speed of sharing = signal of preparedness. "Can I see your data room?" → share in 5 minutes, not 5 days.

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Integration with Other Skills

• Financial data feeds → investor narrative + data room
• Unit economics feed → skills/public/head-of-growth/SKILL.md weekly audit (CAC/LTV tracking)
• Valuation context feeds → skills/public/market-research/SKILL.md comparable deal analysis
• Burn modeling feeds → skills/public/gtm-strategy/SKILL.md (unit economics determine which channels to invest in)
• Run alongside → skills/public/corporate-structure/SKILL.md (cap table connects to financing history)