Financial Model
There are three particular reasons why a financial plan is important for startups specifically:
 
1.       Firstly, you need one to build an economically viable business. Why? Because by quantifying (and then validating) your business plan and business model, assumptions and vision you are able of finding out whether you can turn your ideas into a sustainably operating business.
 
Moreover, if you build different versions (“scenarios”) you are better prepared for the future, especially if things do not go the way you planned. What if you launch half a year later? Answering such a question in your “worst-case scenario” helps you anticipate how your cash flow, profitability and funding need are impacted.
 
2.       Secondly, you need one as part of the fundraising process. Financiers will typically ask you for a financial plan when you engage with them to raise funding. Whether they are angel investors, VCs, Banks or a subsidy provider. Certain investors will require more details than others, but building a model is wise even if you only need to provide them with high-level data.
 
Why? Because it helps you answer the tricky questions a financier might have when he or she dives into your business case. Moreover, how are you planning to raise funding if you did not properly calculate how much funding you actually need?
 
3.       Lastly, you need one to inform yourself and shareholders. How do you know how your company is doing if you don’t have any targets to achieve or steering information to compare against? How are you going to update your shareholders on how you are spending their money and whether you are performing as promised without any financial plan to benchmark against? You will need a forecast to do so.
 
Your external check should include a detailed assessment of whether your chosen modelling basis, i.e., TOP DOWN or BOTTOM-UP forecasting, is applicable to your sector and vertical. Top-down forecasting is ancient history and a complete waste of time.
 
It should also check your model’s assumptions (input fields for internal formulas). If these are wrong, or the formula construction is flawed, the entire Financial Model will be a bunch of numbers which don’t reflect your view on the future.
 
Lastly, never lose sight of the outcomes that your model should hopefully achieve, these being:
1.       Financial Statements
2.       Operational Cashflow Overview
3.       KPI Overview
 
Authors note:
When I started building and reviewing financial models back in the day, someone taught me to never believe the numbers you see unless you have scrutinised the logic and checked the calculation basis.
 
I used to perform some “sanity checks” on each financial model to make sure we (or the company being reviewed) had avoided common pitfalls in the financial models of startups.
 
You can find ten common errors below:
1.       A mismatch between the financial model and the business plan: a financial model should resonate with the overall business strategy
2.       Overoptimistic or very pessimistic revenue projections
3.       A funding need that is not adequately explained: make sure you include a breakdown of costs
4.       Underlying assumptions that are not clearly defined: you should be able to provide clarification or proof of the numbers
5.       Not enough employees as part of the personnel forecast: do not underestimate the number (and costs) of employees you need to build a fast-growing company
 
6.       Revenue projections which are not aligned with the market size: by definition, revenues cannot be larger than the size of the market
7.       Operational expenses that are being left out: make sure expenses are aligned with your strategy
8.       Operational expenses which are misaligned with the forecasted revenues: make sure expenses resonate with revenues
9.       No realistic view of the gross, EBITDA and net margins: when speaking with investors, always be prepared to answer questions on your current and expected margins
10.   Disregarding the importance of working capital: do not underestimate the effect of payment terms on your funding need

Data Room
Building your data room and populating it with documents as they are available does not mean that you need to share everything in there with every investor you meet. You need to get advice from investors who have invested at various stages – e.g. seed stage, series A, B etc., as to what is required and when.
 
Having said that, you could expect to prepare the following if you are raising a large seed round or Series A round and later ones:
 
Financials & Cap Table
To start, you will want to include the basics for your fundraise. This includes your deck, basic financials (cash metrics, OpEx, etc.), projections for the following year, and your cap table. Be sure to include any happenings and commitments for the current round as well. All of these things should be easily accessible for you and should require minimal effort to get them together.
 
The team at Corl suggests including the following documents as well:
Voting agreements
Investor rights agreements
First refusal & co-sale agreements
Stock purchase agreements
Capitalization table
Any documents/details on previous raises
 
Market Data & Research
This section is intended to show you have a deep understanding of your market and your immediate competitors. Include any first-hand market research or public reports that are relevant to your market. You will also want to share a competitive analysis showcasing different price points and feature differences. 
As Andrea Funsten wrote, “Include a competitive Landscape Tracking Sheet – a list of companies that they are tracking, some that are not on the market yet. I love that they were not afraid to share this and were extremely thorough.”
 
Incorporation Docs
Investors will want to quickly glance at incorporation docs to make sure your company is set up for success.
A couple of example docs that are worth including:
Amended and restated articles of incorporation.
Bylaws
Business certificates
Tax IDs
 
Team & Stakeholders
This is exactly what it sounds like, a section to highlight your team members. This should also show the exact titles, salaries, and job descriptions for current team members.
 
Also, use this as a section to showcase where your next hires will be. This will not only help share the vision of the team you are building but can also allow investors to jump in and help hire from their network. To go above and beyond, you can also include things like onboarding documents to offer a glimpse of your culture and hiring process.
 
A couple of example ideas: 
Employee contracts
Team Overview
Onboarding documents
Info on current board members
Past board decks
 
Past investor Updates
Not only will including past investor updates help them assess the growth of the business, but it is also a surefire way to show you take investor communication and transparency seriously. As Andrea Funsten Tweeted, “Recent investor updates for the last 6 months. Helps me not just gauge the level of transparency that they have with their investors (sharing the bad just as much as the good) but I can see the progression over time.”
 
Customer References
During due diligence, investors will likely want to understand how your customers view your company. You can include a customer references and referrals section in your data room to help demonstrate how much your customers love your company.
 
Marketing materials
This can be a quick section showcasing your brand and marketing vision. Include your pitch deck as well as a deck you may share with customers. The team at Corl suggests sharing a 1-pager on your brand and marketing vision here as well. 
 
Product
Some companies might want to include a section about their product or service. This can include anything from a demo video to IP information and patents. Check out a few examples of what you might want to include with your product folder below:
IP information
Demo video
Technology (APIs, integrations, roadmaps, etc.)