Pre-seed financials: Setting up your startup to scale

Having a solid financial model from the get-go can really help your startup to stay on track. This doesn’t mean that everything has to go exactly how you planned - no one expects you to have a crystal ball. 

But what it does do, is prove that you’ve considered your growth and longevity as a business. It doesn’t need to be a monster document, but should tell a story - one that shows how you’ll grow, how you’ll spend, when you’ll hire, and how long you can expect your money to last.

What do ‘pre-seed financials’ actually mean?

At this stage, your financial model will be less about technical accounting, and more about building your confidence - in yourself, your plan, and your pitch. 

Your model won’t be fully fleshed out in the early stages, but understanding your finances from the start will help you to grow tactically and with a sound understanding of where you started.

It should show that you understand: 

• Your operating costs
• Your revenue potential
• Your cash needs and burn rate
• Your hiring plan and when to bring people on
• How you plan on turning investment into value

Why does your financial model matter, even at an early stage?

Early-stage investors probably aren’t looking for watertight financial forecasts; they know things will change. But what they do want is clarity. 

Founders that have clearly done their homework, know how their business will function, and can forecast the next 18-24 months are likely to win over investors more easily. 

Even if you’re not raising investment right now, a basic model helps you to:

• Prioritise your spending
• Time your hires
• Understand when to raise (and how much you’ll need)
• Avoid preventable bottlenecks in spending and cash flow
• Make growth-driven decisions

Your financial model is also a key evaluation tool when it comes to your company’s valuation. Understanding how you operate and scale financially is crucial when considering how much your company is worth. 

Your valuation is also influential when setting a share price, should you wish to offer shares upfront to prospective employees!

Building a model that works for you

Here’s how to think about financial modelling in the simplest, most startup-friendly way.

1. Keep it lean and focussed

You don’t need to be intimidated by the huge, corporate-style financial model templates you might find elsewhere. For a pre-seed startup, you should focus on: 

• Monthly or quarterly projections (for the next 18-24 months)
• Top-line overview of revenue, cash flow, and costs
• A clear path linking funding, hiring, and growth

Remember: you’re telling a story. It doesn’t matter if that story changes; what matters is that it makes sense today.

2. You can start with revenue assumptions

Even if you have yet to make a sale, it’s OK to make assumptions about:

• How many customers you’ll acquire each month
• How much they’ll be paying
• Any seasonality, or peaks and troughs in your revenue stream

This helps to map out when the income will start arriving, and the rate at which you might grow.

3. Add the costs of sales or service

These are the direct costs involved in delivering your product or service. You should consider: 

• Product manufacturing, logistics, or fulfilment costs
• Developer hours or digital platform fees
• Any additional tooling or services used to deliver extra value

Even at pre-revenue, these costs are crucial to gauge your profitability and expenditure.

4. Plan for team growth and hiring

This is a big one, and can take up a large chunk of your expected investment, especially in the early days. You should use your model to ask: 

• Who do I need to hire first to accelerate growth?
• What will their salaries cost (plus NI, pension, and any other fees)?
• What’s the timeline for bringing them on?

If you’re not ready to hire full-time employees, you can also add the price of freelancers and contractors needed to boost your business in the early stages.

Offering equity can also be a great way to attract and retain top talent, without forking out hefty salaries. 

Using incentives such as EMI options or growth shares will tie in key hires to the long-term success of your business, and this can also be flagged as a part of your total compensation planning.

5. Map out internal operational costs

Beyond your team and costs of sale, consider the price of other expenses needed for the operation of your business, outside of the direct product or service offering. This includes: 

• Subscriptions and tools
• Marketing and advertising spend
• Legal and accounting support
• Office or co-working space (if needed)

6. Understand your cash flow

Once you have your revenue and expenses in, it’s time to consider timing: 

• When do invoices need to be paid?
• When do key costs hit?
• When will you run out of cash (according to your model)?

This helps to outline your runway, and will be influential in deciding when you’ll need to think about your next round.

More than just a model

Your pre-seed model isn’t just to dictate your fundraising goals - it will help you to anchor all major business decisions to a single growth trajectory. With your financial model in place, you can stay on track of your growth, and keep moving in the right direction. 

You can make smarter hiring decisions, justify your raise amount to investors, forecast ownership changes, and most importantly, build investor confidence. 

Truly knowing the logic behind future financial decisions will clearly help you to stand out in a sea of pitch decks!

InVestd Raise

Once your financial model is in place, InVestd Raise is our seamless digital platform that can help you to prepare for, and execute a funding round, without the admin headaches. 

Build your pitch decks, apply for SEIS/EIS Advance Assurance, and structure your digital cap table ahead of investor review. 

When the time comes to start the hiring process, setting up a share scheme with Vestd is as easy as (slicing) pie. Create bespoke schemes to attract and reward key players, grow your team, and build something meaningful, together. 

Book a call to discuss your options today!