Operating Model Template

Why Build an Operating Model?

When fundraising, entrepreneurs should always be prepared to answer the question: “How much money do you need, and how far will that get you?” Very often, the answer is “We need $X million dollars to reach milestones A, B & C in Y months.” Unfortunately, often when we dig into the “why” and “how” behind those numbers, the underlying rationale is much less clear.

After some back-and-forth during due diligence, we (and the entrepreneur) often conclude that the funding required is materially different than originally presented. In some cases, we find ourselves working with the entrepreneur to build an entirely new financial model to get to a clearer view of the business. The extra iterations can unnecessarily add additional weeks and risk to the fundraising process.

As an entrepreneur, you have a lot going on: building your product, hiring an A-team, winning and serving customers, assembling a pitch deck, etc. Often times, constructing a detailed financial model – capable of forecasting revenue, operating expenses, headcount, and cash needs – gets pushed further down your to-do list. It can even be a bit daunting – especially if you do not have someone on your team with a finance background. At the same time, however, a three-year operating-level financial model will be near the top of any institutional investor’s due diligence list – especially for Series A rounds and later.

A well thought-out and clearly presented model, shortens the diligence phase and builds an investor’s confidence in both you and your business. It clarifies how you think your business will evolve and scale over time. A model forces you to quantify assumptions and (when possible) tie them to historical data – thereby helping both you and investors understand key unknowns and sources of risk. Finally, the model drives alignment with investors – serving as documentation as to how and when funds will be used.

Our Operating Model Templates

Over the years, we have developed a set of simple operating model spreadsheet templates for entrepreneurs to quickly build effective models. With few inputs, each model generates an Income Statement, Balance Sheet, and Cash Flow Statements. For simplicity, the models do not include capital expenses, depreciation, or inventory management – though they can be added by a power user.

Depending on your type of business, there are five templates to choose from:

Business SaaS
Software sold as a subscription with revenue – recognized monthly and spread over the term of a contract.
Licensed Software
Software sold as a perpetual license with license revenue (recognized in a single month) and recurring maintenance revenue (spread over the term of a contract).
Consumer App/Service
Software sold as a subscription and/or supported by advertising with revenue recognized in the month delivered.
Consumer Marketplace
Software platform connecting buyers/sellers with revenue recognized in month of transacted sale.
Medical Device
Device revenue recognized upfront and consumable revenue recognized over the length of the treatment.

We hope these templates are helpful, but we know they are not perfect. If you have suggestions on improving the models or other feedback, please contact us.

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