When a startup sits in front of an investor, the pitch deck tells the story — but the financial model is what backs it up. A well-built financial model demonstrates that the founder deeply understands their business: where revenue comes from, how it scales, what it costs, and when it becomes profitable. In Portugal, where the investment ecosystem has matured significantly in recent years, seed and Series A investors expect increasingly professional models.
What is a financial model?
A financial model is a numerical representation of how the business works. It projects revenue, costs, investments and capital requirements over 3 to 5 years. It is not a spreadsheet with invented numbers — it is a tool that translates strategy into figures and allows you to test scenarios.
The essential components
- 1
Revenue model
How the business generates money. For SaaS: MRR, churn, expansion, new customers. For marketplace: GMV, take rate. For services: number of clients, average ticket, frequency. Investors want to understand the mechanics — not just the outcome.
- 2
Cost structure
Fixed vs. variable costs. COGS, salaries, marketing, infrastructure. Investors analyse how costs scale relative to revenue. Ideally, revenue grows faster than costs.
- 3
P&L projection (Income Statement)
Revenue, costs, EBITDA, net result — monthly for Year 1 and annually for Years 2–5. It should clearly show when the company reaches break-even.
- 4
Cash flow projection
Different from the P&L. Includes capital expenditure (CAPEX), working capital movements and financing flows. This is where investors see how much capital the startup actually needs.
- 5
Cap Table (Capitalisation Table)
Who owns what before and after the round. Dilution. ESOP. Investors want to understand their ownership stake and whether the structure is clean.
- 6
Scenario analysis
Base, optimistic and pessimistic. Investors know that base case projections rarely materialise. They want to see that the founder has thought through the risks and has a Plan B.
- 7
Key metrics
CAC (customer acquisition cost), LTV (lifetime value), LTV/CAC ratio, burn rate, runway. These are the metrics investors use to compare startups against each other.
Mistakes that destroy credibility
Hockey stick projections without justification
If revenue jumps from €100K to €5M in two years, investors want to see exactly how. Every assumption must be defensible.
Ignoring churn
Especially in SaaS. A model assuming 0% churn is not optimistic — it is naive.
Underestimating hiring costs
Growing startups need people. Including only current salaries without projecting the necessary hires is one of the most common mistakes.
No sensitivity analysis
If the model only works in a perfect scenario, investors will see it as fragile.
Poorly structured spreadsheet
Broken formulas, hardcoded values where variables should be used, lack of separation between inputs and outputs. The quality of the Excel reflects the quality of the thinking.
Best practices
Build bottom-up, not top-down
Don't start from 'the market is worth X, we'll capture Y%'. Start from: how many customers can we acquire per month, at what cost, with what conversion rate. The result should be ambitious but grounded.
Separate inputs from outputs
All variable assumptions should sit in an 'Assumptions' tab that the investor can easily adjust.
Use monthly periods for Year 1
Monthly granularity shows you understand short-term dynamics. Years 2–5 can be annual.
Document your assumptions
'3% conversion rate based on the first 6 months of operation' is far better than an unexplained 3%.
A good financial model does not convince an investor to invest — but a bad one convinces them not to. It is the difference between being taken seriously and being filtered out at the first screening.