Quantitative forecasting for early-stage startups

This is a Catch-22 situation for startups. How can you convince investors to invest in your startup with financial projections that are compelling if you do not have any historical data? Here is a three-part plan to make the most out of your current data and seal the deal.

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By Sean Heberling


Sean is the General Partner of Addvia Ventures. Addvia invests in high-growth early-stage companies that are addressing large markets. He is also the founder and CEO of Marion Street Capital. This firm helps companies refine their forecasts and increase revenue. He worked previously at Morgan Stanley and BNY Mellon and has completed investment transactions worth more than $1 billion.


Quantitative Analysts Financial Modeling



The funding dilemma for early-stage startups has become more acute since 2022 when the market for raising capital was slashed. For founders to appeal to investors, especially those who are recession-conscious, they need to show compelling evidence that their business will pay off. quantitative planning is one way to achieve this, but with little or no financial history, the metrics that can be used to support such a forecast will be limited.

There are ways to overcome the challenge of building a convincing case. These steps, if implemented correctly, can deliver financial forecasts that are data-supported and persuasive. They also help lay the foundations for a data strategy designed to assist founders in scaling operations.

Since I moved from financial services to consulting in 2018, I have advised dozens of startups on their business development and fundraising initiatives. Venture capitalists are attracted to big, bold ideas, and they have recently focused on metrics such as cash-burning rates and paths to profitability. However, a strong forecast of annual revenue is still important.

Start with a Data Strategy

Investors will draw a direct line between topline revenues and the potential value of a company, even at the startup’s early stages. You must show that you can generate $100 million per year within the next 5 to 7 years in order for your company to reach $1 billion. You can achieve this in different ways, but the general rule is that the higher your revenue-growth rate, the higher the potential valuation, and the greater interest you will receive from investors.

Firms need to be agile to grow quickly and achieve the data-literate. This means they must make operational data easily accessible and interpretable. Use metrics to set benchmarks for your business and include them in your Business Plans and Financial Models.

As I understand that not every company can afford to produce and research these statistics in-house, each startup must create a streamlined collection and analysis system based on the metrics they need most. It is for this reason that I recommend clients start with three fundamental building blocks:

  • Market Research
  • Pricing
  • The Sales Pipeline

Concentrating your efforts on these three pillars can help you build the foundation necessary to scale and develop the quantitative metrics needed to convince investors to bite.

Market research: Research your customers and industry

Market Research is the first pillar that you will need to establish to maximize your revenue and create a foundation for an effective data strategy. By obtaining a thorough understanding of the target market, founders can establish a framework that is based on facts and allows them to project sales and profitability. You will be able to determine the largest market you should target. This information can also help you set the foundation for pricing and key financial indicators.

Even basic market research can yield powerful results when a company is trying to determine its customer base. The surveys of potential customers provide both qualitative and quantitative data. I use these extensively in the form of electronic questionnaires or remote interviews. Interviewing current employees, customers, and vendors in-depth can give you qualitative insights into the company’s strategy. Focus groups are something I avoid because I find it difficult to conduct them impartially.

I’ve also used market research in order to help companies create quantitative statistics, which are often included as part of pitch decks. These can be useful for improving aspects of operation, such as reducing costs of acquisition of customers. I helped a young automated manufacturing company conduct a survey with its established customers. The survey collected a wide range of quantitative information, including headcount and revenue, along with qualitative responses describing the industry challenges that companies faced.

We gave anonymous copies of survey responses to respondents as an incentive, so they could see how their company compared with others in the same industry. We were able, using the data collected, to help our client define key variables for its business.

  • The cost of customer acquisition is a key metric for startups
  • Customer Lifetime Value is used to inform revenue projections
  • Operating Margin helped determine the amount the company required to raise
  • Differentiation competitively helped position the company in relation to the issues that the industry was facing at the time.

This data was used to help the company obtain $25 million in funding from a large venture capital fund. The investment has been a success for everyone involved: Fortune 500 clients have been acquired, and they are on a path towards becoming a leader in their industry.

Price to Create Value for Customers and Capture Fair Share

In order to maximize revenue, the second pillar of a startup metrics strategy involves adopting the most profitable and sustainable pricing mechanisms. I have noticed that very few entrepreneurs are fully exploring the pricing strategy options available to them.

Pricing can appear to be a mysterious art. You can lose customers if you charge too much. If you charge too little, you will lose money and your fundraising goals. You can find the right balance.

You need to first understand fundamentals.


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