How to Land VC Funding - Q&A with a Financial Modeling Expert
- leronkornreich
- 6 days ago
- 6 min read
Startups looking to raise rounds are facing a split capital markets reality. AI companies are capturing nearly two-thirds of all VC deal value, while non-AI startups are competing for a much smaller pool of capital. Investors are demanding proof: real unit economics, defensible margins, and a clear path to profitability.
In this blog post, we pick the brain of Joe Hartman, the founder of GRAY and an expert in investor-ready financial modeling.
What are the top mistakes that CFOs / startups make with financial models?
What are the key financial metrics that VC’s pay most attention to when evaluating your business?
What do startups find most difficult — and how can they overcome it?
When accurately forecasting your next stage of growth, what’s most important to bear in mind?
Si14 Global: Joe, you’ve been involved in nearly ¾ of a billion dollars of investments and fundraising over your career. What are the top mistakes that CFOs / startups make with financial models?
Joe Hartman: One of the biggest mistakes founders make when sharing a financial model with investors is that their three core financial statements (the profit and loss statement, the cashflow statement, and the balance sheet) don’t actually connect to each other. When these statements aren’t linked, changing one assumption (like pricing or headcount) won’t flow through the rest of the model. Investors want to see how a single change impacts the whole business, so having everything properly connected is essential.
Another red flag is leaving out the key metrics that matter for your type of business. If you don’t know your own metrics (or don’t highlight them clearly), it signals that you’re not tracking the fundamentals. The best models put these metrics on a simple dashboard right at the front.
Investors also pay close attention to margins. If your gross or net margins look unrealistically high, it suggests you may not fully understand your costs or the realities of your market. A strong model shows that you’ve included all the necessary expenses and that margins improve gradually over time, not through sudden “hockey‑stick” jumps.
Hard‑coding numbers directly into cells is another common issue. Instead of typing fixed values into random places, you should use formulas and keep all your assumptions clearly labelled in one section. This makes the model easier to adjust and gives investors confidence that it’s built in a structured, reliable way.
Si14 Global: What are the key financial metrics that VC’s pay most attention to when evaluating your business?
Hartman: When venture capitalists evaluate a business, the first metric they almost always focus on is revenue growth. Fast, consistent growth is the strongest signal that a company is gaining traction and can scale, regardless of sector.
Beyond that, the metrics VCs care about vary by industry.
With SaaS companies for example, investors typically look closely at NRR (net revenue retention) - whether your current customers are spending more, the same, or less with you than they did last year - with top‑quartile performance around 110%.
They also examine gross revenue retention (how much of last year’s customer revenue you still have today, after accounting only for downgrades and cancellations - not including upgrades) with the top quartile around 90%.
The LTV/CAC ratio (Lifetime Value : Cost of Acquisition) remains important and should ideally sit well above 3X. Investors are also paying more attention to financial ‘efficiency’ metrics, such as Burn multiple (how much money you’re burning to create each new $1 of revenue - strong companies are usually below 1). They also consider the “magic number” (how much new revenue you generate for every $1 you spend on sales and marketing) where anything above 1 indicates healthy sales productivity.
And finally, with AI leading to increasing focus on cost efficiency, annual recurring revenue (ARR) per employee is increasingly becoming the north star metric.
Si14 Global: What do startups find most difficult — and how can they overcome it?
Hartman: Predicting future revenue is one of the hardest parts of building a startup model. Your projections should be ambitious enough to excite investors, but grounded in assumptions that make sense. If you truly have no idea where to start, many founders use the “TTTDD” rule of thumb: triple revenue for the first two years, then double for the next three. It’s not perfect, but it gives you a starting point until you have real data.
Understanding financial metrics proves to be another challenge since most founders aren’t finance experts. Investors expect you to understand the key metrics for your industry. Bringing in a strong finance person early (even on a fractional basis) can help you build credible forecasts and track the numbers that matter.
Another common struggle is knowing how much money to raise. The solution is a clean, flexible financial model that you can update easily. A good model helps you understand your cash needs, plan hiring, and make better decisions — and it makes fundraising conversations far smoother.
Si14 Global: How do you know if your financial model is ‘VC ready’?
Hartman: A VC‑ready model should be simple, clear, and easy for someone else to follow. As a rule of thumb, try to keep it to no more than five tabs, including a Dashboard, an Assumptions page and your Financial Statements. And include a short narrative at the start to help frame the story of the model.
Your financial statements need to be properly connected. At a minimum, link your profit and loss statement to your cashflow forecast, and ideally include a (linked) balance sheet too. When these statements flow into each other, you can see how a single decision—like hiring someone or changing pricing—affects cash, profitability, and the overall health of the business.
Use standard formatting so investors can instantly understand what they’re looking at. A common approach is:
Blue text on yellow for inputs and assumptions
Blue text on white for actual historical numbers
Black text on white for calculated outputs
Your KPIs need to stand up to scrutiny. Weak unit economics usually signal weak product‑market fit or a misunderstanding of your market. Strong KPIs show you know your business and your customers.
Be clear about your use of funds. Spell out how much capital you need, what you’ll spend it on, and the milestones you expect to hit before your next round. Investors want to know exactly where their money is going.
Finally, include scenario analysis. Show best‑case, worst‑case, and most‑likely outcomes so investors can see that your business still performs under more difficult conditions—whether demand drops, costs rise, or the market shifts.
Si14 Global: When accurately forecasting your next stage of growth, what’s most important to bear in mind?
Hartman: When you’re projecting how your business will grow, the most important thing is to stay grounded in reality. Start by looking at the growth rate of your overall market. If the market itself is only growing 10% a year, it’s unlikely your business will suddenly jump to 200% growth without a very strong reason.
Your own historical performance is another key anchor. Investors expect your forecasts to follow the general pattern of your past results, unless you can clearly explain what’s changing—such as a new product launch, a bigger sales team, or a major partnership. Sudden, unexplained jumps in revenue are a red flag.
Finally, remember that growth depends on people. Your ability to scale is tied directly to your team’s capacity—how many salespeople you have, how quickly you can onboard new hires, and whether your operations can handle increased demand. Ambitious forecasts only work if you have the team to deliver them.
Joe Hartman bio: investor
Hartman has been involved with over £500m of investments and fundraisings over his career. He is one of the few people in the Financial Modelling space with a background as a Venture Capital investor, which enables him to build effective models and guide companies towards a successful fundraise.
Hartman speaks regularly to Founders and CFOs on how to build “VC-ready” financial models, and sits as an advisor on the Investment Committee of Blackfinch Ventures – a seed stage tech VC and the UK’s best performing VCT fund of 2024.
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