Financially engineered models include advanced forward-looking
spreadsheets that attempt to forecast the business opportunity anywhere
from 3 to 10 years. Since most accounting software only addresses history,
the company is on it's own to design a forecast that reflects its own unique
business model. Again, there are several "off the shelf" programs which
accelerate the development of a sound financial model. Sophisticated deals
can invest tens of thousands designing a comprehensive macro-driven model
over a period of 6 months or more.
Investors tend to use the summary data to scope the project, then dive into detail only after they've decided to enter into due diligence. So extensive financials are not usually required in the initial business plan, but should be provided later upon request. Larger funds with the staff may invest several weeks in modeling the company's deal independently during due diligence to see how both sides view the project. Entrepreneurs need to add this consideration to the VC's time estimate for "closing the deal."
Financial Model tools are designed to help the company develop it's Financial Model faster and more in touch with investor's needs. Most frequently omitted is the demand model, a critical sheet that includes top down and bottom up market sizing forecasts. This is a major hot-button for investors. The demand model is derived from the Strategic Market Focus in step 3a above, and is then integrated with a traditional forecast model. The Financial Model architect needs to create "hooks" for linking to the Shareholder Model and Deal Models later.
VenLogic provides guidelines for model architectures, data population, and scenario generation. Structure matters. The objective is to create an "Executive Dashboard" which becomes a key tool for the CEO and is managed over time for guiding the business.
