Before you build your financing roadmap and your financial plan, you will have defined your business model and developed an execution plan of key milestones for your venture. Additionally, you will need to put together a list of key business assumptions.

Key business assumptions

Create a comprehensive list of key assumptions you are making about the business, such as:

  • product or service performance metrics
  • your customer’s business case (that is, their return on investment, or ROI)
  • market size, addressable market and target number of sales units
  • gross margin —for direct and indirect sales
  • sales calls per salesperson
  • conversion rate of prospects to customers
  • length of sales cycle
  • technical support calls per unit shipped
  • payment cycle for receivables and payables
  • compensation requirements for sales and distribution
  • headcount levels and compensation assumptions for research and development, quality assurance, marketing, customer service/operations, finance, and human resources teams

Track and test these assumptions on an ongoing basis and if they prove false, react to them quickly. Ideally, you can link most of the major assumptions to the key milestones you have set for the business, so that when you reach a milestone, you can test the related assumptions.

Create your financial plan

Using your key assumptions, business model and execution plan, develop a financial plan for the business which includes:

  • cash flow forecast by month for the next 24 months that is developed from bottom-up assumptions, and (at minimum) annual projections for three to five years thereafter
  • high-level income statement for the same three- to five-year period based on market forecasts, gross margin targets and earnings expectations for your business
  •  balance sheet may or may not be required depending on stage of the business and type of investor; however, any cash requirements associated with the balance sheet such as capital expenditures or repayment of debt, working capital required for inventory and accounts receivable, and cash available from accounts payable should be considered in your cash flow forecast, along with any sources of financing
  • two alternative scenarios for your financial plan , showing an optimistic and pessimistic outcome, with your regular set of assumptions being the most probable outcome

Determine size and timing of investment rounds

At each funding round, investors will expect companies to have achieved key milestones and to demonstrate for sales traction. A hierarchy exists for sales traction, as follows:

  • sales
  • field testing and pilot sites
  • agreement to field test, pilot or use prior to shipment
  • establishment of a contract to pursue a field test
  • references from customer proxies (used by angel and seed investors mainly)

The higher you find yourself in the hierarchy, the better for fundraising. If you do not have at least a contract to pursue a field test, then you will have difficulty raising money from traditional venture capital firms. You will likely need to provide references from prospective customers or their proxies to attract angel and seed investment.

To develop your financing roadmap

  1. Determine the total amount of capital your business will need until its cash flow can break even in your probable financial plan. Everything does not always  go according to plan, so most entrepreneurs show a range of potential capital requirements, adding 10% to 25% to the top end of the range.
  2. Split the investment amount into desired rounds of financing (usually two to four rounds). Each round of financing should provide enough cash to enable you to fund your probable financial plan through the next major milestone for your business (for example, shipping commercial products to customers, entering Phase II clinical trials). Again, it usually makes sense to communicate to prospective investors a range of sizes of target investment rounds.

There are factors that may affect how much investment you raise versus your target. These include:

  • How much investment is available to your business?
  • What are the terms of the investment? If the valuation of your business is lower than your expectation or the terms are onerous, you may choose to raise less money to reach a nearer-term milestone where the valuation may improve due to either different market conditions, or a lower perception of risk or higher perception of sales traction on the part of the investor. the
  • How much investment do your investors think is required to achieve your milestones and necessary level of sales traction? Investors will focus on how to ensure the next round will be at an increased valuation amount and on terms that will appeal to existing shareholders.

Remember to update and adjust your financing roadmap as you achieve milestones and sales traction, as well as when they key assumptions in your financial plan change.


Kawasaki, G. (2004). The Art of the Start: The Time-Tested, Battle-Hardened Guide for Anyone Starting Anything. Toronto: Penguin Canada.
Golden, K. (2007, March). Fail to Plan: Plan to Fail. Retrieved April 7, 2009. Presentation delivered at MaRS Discovery District, Toronto, Canada.