Key points
- Separate inputs, calculations and outputs
- Source every material assumption
- Include scenarios and sensitivities that matter to the investor
- Reconcile the model to the deck exactly
The financial model is the document an institutional investor spends most time on, and the one most often found wanting. A model that cannot be followed is treated as a model that cannot be trusted, and an investor who cannot trust the numbers will not price the opportunity. The following standards are the ones investors' analysts apply.
Structure
- Inputs, calculations and outputs on separate sheets, with inputs clearly marked and held in one place.
- Consistent timelines across sheets, with a clear time period convention.
- No hard coded numbers in formulas. Every figure traces back to an input.
- Checks that the balance sheet balances, cash reconciles and debt ties out, visible on a summary sheet.
- A short user guide explaining structure, conventions and how to run scenarios.
Assumptions
Every material assumption needs a source: a contract, a quote, an independent report, historic data or a clearly stated management view. Keep an assumptions book listing each one with its source and date. The assumptions investors scrutinise most are those that drive value: price and volume, capex, opex, degradation or churn, timing, and financing terms.
Scenarios and sensitivities
Include a base case and at least a downside case, with switches to run them. Show sensitivities on the variables that matter most, such as price, yield, capex, delay and interest rates. Investors will run their own downside; it is better that yours is credible and theirs holds no surprises.
Financing and returns
- Debt sizing on cover ratios where relevant, with the terms assumed stated clearly
- Sources and uses of funds that tie to the capital being raised
- Returns to each class of investor, on the measures they use: internal rate of return, multiple, yield
- Exit or terminal value assumptions stated explicitly
Sector specifics
Energy models need yield, degradation, capture prices and curtailment. Storage models must link cycling, degradation and augmentation, as set out in how to raise capital for a BESS project. Data centre models need power ramp, leasing and pricing per megawatt. Growth company models need cohort economics and a bridge from current to forecast revenue.
Reconcile to the deck
Every number in the deck should appear in the model. A mismatch between the two is one of the quickest ways to lose credibility at first screen.
Should you have the model reviewed?
For a significant raise, investors may expect an independent model audit before financial close, particularly with project finance. Before that, a review from the investor's perspective identifies the problems that would stop a conversation earlier. The Investor Readiness Review includes a financial model assessment led by our senior financial modelling analyst.
Before you approach the market. The Investor Readiness Review tells you what an investor will conclude from your materials, and what to fix first. £995 plus VAT.
This article is general information, not investment, legal, tax or financial advice. BriHel Capital introduces only and does not arrange transactions, provide advice, or carry out regulated activities.