Excel Fortune-Telling: Why Your Financial Model is Lying and Why the Investor Asks for It Anyway
- IBDA GLOBAL
- Mar 16
- 3 min read
“We will earn 100 million in three years,” the founder claims. “Show me the model,” the investor replies. The founder opens a spreadsheet where revenue grows exponentially, like an Elon Musk rocket. The investor smirks.
Both participants in this scene know a secret: the financial model is wrong. No one can predict a startup's future three years out with dollar-perfect accuracy.
Then why this circus?
The investor isn't looking at your spreadsheet to see the future. He is looking for logic. A financial model is the only way to "digitize" your strategy and check if you are breaking the laws of business physics.
Top-Down vs. Bottom-Up: The Battle of Fantasy and Reality There are two ways to plan, and choosing one immediately marks you as either an amateur or a pro.
Top-Down (The Lazy Method): You take the Total Addressable Market (TAM), say $10 billion, and say: “We will capture 1%.” Poof—you have $100 million in revenue. It looks nice, but it’s useless. It’s not an action plan; it’s a hallucination.
Bottom-Up (The Realist Method): You forget about the billions and come down to earth. How much does one click cost? What is the sales conversion rate? How many calls can your only manager, Ivan, actually make?
An investor will only believe you when they see a funnel: Traffic → Leads → Conversion → Sales. If your model shows revenue growing while marketing expenses stay flat, you’ve failed the IQ test.
The Three Pillars of Trust A professional model (following FAST standards or accelerator guidelines) must answer three questions, each represented by its own report:
P&L (Profit and Loss): Does your business model work in theory? Here, the investor looks at EBITDA and margins. If you are selling a dollar for 90 cents and hoping to make it up on volume—you are bankrupt.
Cash Flow: Will you have enough money to survive until success? This is the most important report. Profit can be "on paper" (you shipped goods with deferred payment), but a cash gap is real. Cash Flow shows exactly when you will run out of money (Cash Gap) and how much investment is needed to plug that hole.
Unit Economics: Does the math work on a single customer? If the Customer Acquisition Cost (CAC) is higher than the Lifetime Value (LTV), scaling the business will simply kill the company faster.
Scenario Planning: The Lifeline A seasoned founder never brings just one version of the model to an investor. He brings three:
Base case: What we believe in.
Optimistic: If we become a unicorn tomorrow.
Stress scenario: What happens if sales drop by 50% and development costs rise by 30%?
It is the stress scenario that sells you as a reliable manager. It shows that you’ve taken off the "rose-colored glasses" and understand where your business's pain points are and how many months of Runway you have left in a crisis.
The Main Advice Don’t overcomplicate it. A 50-sheet model with macros that freezes the computer is useless to everyone. A good model is transparent. An investor should be able to change one cell (for example, the cost per click) and immediately see how it crashes your net profit.
Let the investor play with your numbers. If the model survives the crash test—you’ll get the check.
