Chapter 6: Raising Capital
One of the most intimidating aspects of building your deck is putting together financial projections, especially as a pre-revenue startup. How do you predict revenue when you don’t have any customers yet? How do you estimate costs when you’re still building your product? We’re going to break this process down into clear, manageable steps so that you can confidently build pro-forma financial statements to include in your pitch deck or to give to potential investors.
Let’s start with the basics. A 'pro-forma' financial statement is essentially a forward-looking estimate of your financials. It's not a record of what has happened—it's a projection of what you expect to happen in the future, based on reasonable assumptions. Investors expect to see these because they want to understand your startup’s financial potential, even before you start making money.
When creating pro-forma financials, you’ll typically build three key statements: the Income Statement (Profit & Loss), Cash Flow Statement, and Balance Sheet. We’re going to focus primarily on the Income Statement and Cash Flow Statement, as these are the most critical for early-stage fundraising.
Since you don’t have revenue yet, the first thing you need to do is build a revenue model based on reasonable assumptions. Investors don’t just want to see big numbers—they need to understand how you arrived at them (and you need to be able to defend them when they ask).
Here’s how you can think about it:
Define Your Revenue Streams – Are you selling a product? A subscription? A service?
Identify Key Growth Drivers – What factors will determine how many customers you get? Is it website traffic? Conversion rates? Sales outreach? Marketing spend?
Make Assumptions Based on Research – For example, if you’re launching a SaaS product, you might assume you’ll convert 2% of website visitors into paying customers. If you’re a marketplace, maybe you estimate X% of users will complete a transaction per month.
Let’s say you’re launching a subscription app. Your revenue model might look like this:
You acquire 1,000 visitors in your first month.
2% of those visitors sign up, meaning 20 paying customers.
Each customer pays $20/month.
That’s $400 in revenue for the first month.
You assume you’ll grow website traffic by 10% each month and maintain the 2% conversion rate.
When you build a revenue model this way—step by step—it becomes much more realistic and defensible.
Now that we have revenue projections, let’s talk about expenses. Even though you’re pre-revenue, you’ll still have costs. Investors want to see that you understand your burn rate—how much money you’ll be spending before becoming profitable.
There are two major types of costs:
Fixed Costs (Operating Expenses) – These are the things you’ll pay for every month, no matter how many customers you have. Examples include salaries, rent, software tools, and marketing expenses.
Variable Costs (Cost of Goods Sold, or COGS) – These are costs that increase as you get more customers. If you’re selling a physical product, this includes manufacturing costs. If you’re running a SaaS company, this could include server costs or customer support.
A simple way to estimate expenses is to break them into categories:
Team salaries (e.g., paying a developer, marketer, or CEO salary).
Software & tools (e.g., hosting, CRM, analytics tools).
Marketing & customer acquisition (e.g., ads, influencer marketing, partnerships).
Office space & operations (e.g., coworking space, utilities, legal fees).
By estimating these costs month by month, you can calculate your monthly burn rate—how much cash you’re spending before making a profit. For variable costs, you should be able to scale them according to your revenue model.
Now you can put these pieces together into a basic pro-forma Income Statement, also called a Profit & Loss (P&L) Statement. This is where we project how your business will move from negative profits to break-even and beyond.
A simple pro-forma Income Statement includes:
Revenue – The money coming in from customers.
Cost of Goods Sold (COGS) – The direct costs of delivering your product/service.
Gross Profit – Revenue minus COGS.
Operating Expenses – Salaries, marketing, office costs, and other fixed expenses.
Net Profit (or Loss) – Gross Profit minus Operating Expenses.
For a pre-revenue startup, this will show negative profits early on, which is normal. The key is demonstrating how revenue growth will eventually outpace expenses, leading to profitability. The pro-forma itself can be easily built in Excel or Google sheets, inclusive of all the sections I mentioned. If you’re paying attention, you’ll notice this looks a lot like the accounting P&L we built in Quickbooks in the previous section. If you have existing accounting, expanding those numbers to look forward into the future will be even easier.
After making your pro-forma P&L, you’ll also want to create a Cash Flow Statement. While the Income Statement shows profitability, the Cash Flow Statement tells investors if and when you’ll run out of money. Even profitable businesses can go bankrupt if they don’t manage cash flow properly.
For a pre-revenue startup, this statement is crucial because it shows:*
Initial investment or funding (how much capital you’re starting with).
Monthly cash inflows (which might be $0 initially, then increasing over time).
Monthly cash outflows (expenses like salaries, rent, and marketing).
Cash runway – How many months of cash you have left before you need to raise more money."*
A simple rule of thumb: if your cash flow projection shows you running out of money in 6-12 months, you need to plan for a funding round soon!
Finally, one of the most important steps is validating your numbers. Investors will challenge your projections, so you need to be ready.
Ask yourself:
Are my growth assumptions realistic?
Did I base my numbers on real-world benchmarks?
Have I considered different scenarios (best case vs. worst case)?
It’s a good idea to create three versions of your financial model: an optimistic case, a realistic case, and a conservative case. This shows investors that you’ve thought about multiple possibilities and can adapt if things don’t go as planned.
At the end of the day, investors know that startup financials are educated guesses—but they still want to see how you think about your business financially. A well-crafted pro-forma statement tells them that you understand your market and growth drivers, you have a plan to scale efficiently, and you know how much money you need to raise—and how you’ll use it.
Building pro-forma’s can actually be pretty fun if you know how to tackle them. Start with simple estimates, refine your assumptions, and be prepared to defend your numbers with logic and data. If you can do that, you’ll gain credibility with investors and improve your chances of securing funding. Take a look at the video on this page for some example pro-forma’s that we can go through together.