Pitching your start-up’s financials to investors is a daunting task. Unless you’re an expert in the field, keeping track of every detail is overwhelming at times. What are the core calculations and statements you need to convince investors of your business plan?

To answer that question, Daniel Dippold gave a lecture on finance to the students of our EWOR Academy. As the CEO of EWOR and an investor himself, Daniel knows what investors want to see in your pitch deck.

In this article, you’ll learn the basics of financial projections and statements to prove your start-up’s value to investors.

Market Sizing: Two Approaches

“How big is the opportunity?” That’s every investor’s first question. Your answers determine if they will trust your vision and invest in your company. So, how do you prove to them that you’ve done the maths and found a large market to explore?

There are two approaches to market sizing: bottom-up and top-down. Both have their advantages and disadvantages. Neither is better nor worse, so it is best to know about both and how to apply them to ensure sound calculations

Bottom-Up Market Sizing

This approach starts with the value of your product or your user. Take those numbers to calculate estimated sales per customer and apply decent growth rates. At the end of this calculation, you’ll see the ultimate market potential of your product.

This type of market sizing allows for a specific measurement of your product’s value prediction.

Top-Down Market Sizing

For the top-down approach, use the so-called TAM, SAM, and SOM principles. These acronyms help you scale the market from its biggest potential to your most realistic opportunity.

  • Total available market (TAM): Research the TAM for your product from studies and statistics.
  • Serviceable available market (SAM): Which part of TAM could you service? Are there geographic or product-related restrictions?
  • Serviceable obtainable market (SOM): How much of the SAM can you secure in the face of competition?

Daniel’s insider advice: start with real numbers in the bottom-up approach, and then use top-down to confirm your calculations. If you don’t reach the same numbers, analyse the gaps and determine why they occurred. “Only once those two add up, you’ll be ready to talk to an investor,” Daniel stressed.

Investors ask questions for both approaches, so it’s best to have as many answers as possible. Your goal is to convince them to spend money on you, after all. For your pitch deck, show them a top-down graphic for simplicity, but have bottom-up calculations at hand to justify it.

Start-Up Financials

Market Sizing Checklist: What You Need to Know

  1. Always calculate both bottom-up and top-down. Differences show gaps in your estimations.
  2. Market sizes below €1 billion are rarely interesting to venture capital investors.
  3. Justify your assumptions. Getting 1% of a $3 trillion market is not a great pitch.
  4. If your price is cheaper, factor this in at least for SOM.
  5. Your SOM indicates the end of the S curve of your financial model.
  6. When talking to investors, don’t discuss operating in multiple markets.

Financial Statements

Pitching to investors requires financial statements. There are three main areas for you to cover: profit and loss, cash flow, and balance sheet. These three items together provide a complete financial picture and cover different topics – don’t confuse them or deceive investors.

Profit & Loss Statement

The profit and loss statement is a summary of all revenues and expenses of your business. How much do you earn? How much money do you spend on equipment and staff? Many investors want to see your profit and loss statement only. Be careful not to add any items that belong in the other two financial statements.

Start-Up Financials

In your profit and loss statement, investors will look for hidden scalable factors. Some founders like to hide costs in these calculations. Others will do so due to accidental miscalculations or a flawed understanding of financial statements.

Thus, investors will examine these numbers and question if they’re reasonable. “It’s not only good for understanding your own business,” Daniel said, “but also really good for understanding how great the opportunity scales and what margins you can achieve.”

Cash Flow Statement

This financial statement shows cash inflows and outflows and the total net cash of your company. Instead of putting investment money in profit and loss, assign it to cash flow statements. Not every cash inflow and outflow is a profit and loss item.

Start-Up Financials

Balance Sheet

A balance sheet illustrates a company’s assets, liabilities, as well as its equity. What does your company own? What are the investments by the owner and shareholders? “It’s unlikely that an investor wants to see this in a pre-seed and even seed round,” Daniel advised. Still, be aware of balance sheets and use them if they’re relevant to your business model.

It’s a “waste of time” to do more than these three financial statements. For templates and more information, visit the resources section on the EWOR Platform.

Start-Up Financials: Understanding Unit Economics

Investors want to know if they’re spending money on a business that will be profitable. If you can’t prove to them that you’ll be successful, they won’t invest in your company. So, how much do you need to scale until you’re profitable?

There are two common methods to determine your future profitability: per unit or per customer. The choice depends on your business model and whether you sell physical products or subscriptions. Investors won’t invest in you if your cost structure prevents profitable success. We will show you examples of how the two approaches work.

Start-Up Financials

The calculation above is for a product that generates a monthly revenue of €9. The customer acquisition costs (CAC) are a total of €3.99 consisting of commission, payment service, and hosting service fees. Always consider those variable costs. This calculation delivers a contribution margin of 56%. Assuming fixed costs of €180,000, this business needs to sell 35,928 units to be profitable.

Using this calculation, you get a great sense of what realistic requirements are to be profitable.

Start-Up Financials

The unit economics calculation per customer works differently. Firstly, it is necessary to calculate the customer lifetime value (CLV) by multiplying the subscription value (s) by 1 divided by the level of churn (c).

For this calculation example, the average customer lifetime (CLT) is 3.33 months. It means an average customer will use the subscription for roughly three months. 

Add customer acquisition costs (CAC) to the calculation through costs per click (CPC) and conversion rates (CR). This allows for creating a CLV/CAC ratio. This ratio shows your profitability. A rule of thumb in business is that this ratio should be at least 3:1. “A lot of venture capital investors want a ratio that’s higher than 3:1,” Daniel shared.

Start-Up Financials: Models & Valuation

How much is your business worth? It’s an exciting question when you think about raising money. Still, remember that all evaluations in a pre-seed round are inaccurate thought experiments. They’re a guiding “rule of thumb” when planning your business and pitching to investors.

Below is an overview of elements that all financial models entail. Based on this information, evaluate your start-up’s worth.

Start-Up Financials

However, there are three uncertainties in the valuation process:

  • estimation, 
  • firm-specific risks, and 
  • macroeconomics.


Your valuation is flawed by wrong assumptions. In other words, you’ve made too optimistic or pessimistic sales forecasts. 

Angel investors without industry-specific knowledge won’t know if you overestimate your calculations,but don’t abuse an angel’s trust because it can have negative long-term effects and harm your business. Venture capital investors will know more about this and question your integrity.

Daniel’s advice: it’s better to downscale than go over the top when it comes to business valuation.

Firm-specific Risks

There are risks specific to your firm. This can mean the risk of co-founders ending up in a fight or other internal problems specific to your business. The more co-founders, the more potential problems there are. This internal structure influences your valuation process.  


Macroeconomic risks affect your business. New regulations can cause valuation issues, for example. These external risks can cause problems for your company and affect its value.

Valuation Methods

There are two main valuation methods to determine the value of your company. Each of them comes with strengths and weaknesses and different use cases, depending on your business model.

Fundamental Valuation

This valuation method determines your value by the present value of all future cash flows. It’s also called discounted cash flow forecast (DCF). Take all future cash flows – including money raised – and add them up. Add the discount rate as well. “Sometimes this can give you an edge,” Daniel said.

Multiple Valuation

This method determines the value by comparing the firm to similar assets. It’s a simple method that works with specific examples. Other factors such as a strong founding team and whether you’ve already sold a company before influence multiple valuation. It’s also industry-specific.

At their core, Daniel defines multiples as consequences of supply and demand. Thus, comparing your company to the competition is a method of determining your start-up’s value.

Final Start-Up Financials Advice

This basic overview of market sizing and financial statements is a core part of your pitch deck for investors. Make sure to understand each of the four main topics and prepare your calculations with care. Investors will know if you mess up your start-up’s financials. Daniel believes in doing your homework before a pitch. He concluded, “If you have this down, you’re ready for investors.”

About the author

EWOR is a school conceived by Europe’s top professors, entrepreneurs, and industry leaders. We educate and mentor young innovators to launch successful businesses.

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