VMI Financial Roadmap

The VMI Financial Roadmap (The “Roadmap”) is a financial modeling tool originally developed by Venture Momentum’s founder, Anthony Nassar, to teach technology start-up entrepreneurs best practices in financial modeling. It provides a powerful illustration of a robust framework with which to build a credible 5-year financial model with scalability and data integrity in mind. The Roadmap is currently the framework used by Venture Momentum to develop custom financial models for its clients.

Framework

The principal foundation of the Roadmap is its reliance on a set of highly granular assumption worksheets that carefully model the revenue, expense and capital drivers of the business and their interaction with each other. As the user modifies one or more values in the assumptions worksheets, changes are instantly propagated throughout the model, providing real-time financial projections and sensitivity analyses of the variables in the Roadmap. By driving the Roadmap exclusively from the value assigned to every assumption, the reports, financial statements, and graphs are protected from inadvertent operator actions that might introduce errors in the final results.

Rick Sutton, CEO of Plus 3 Network, Inc., a Venture Momentum client, put it so eloquently:

"The VMI Financial Roadmap platform developed by Anthony demands that you build a bottom-up revenue model. It politely forces you to do your due diligence, which places you in the best position possible to both fund and build a successful company. I especially like the feature that when we shift one data point, all others shift in concert. This saves time, and more importantly it combats entry errors that could prove costly. Our financial model is believable, and by getting it right from the start, I am now able to make quick adjustments for our management team and funding partners."

To satisfy a wide variety of requirements from investors with regard to the planning horizon (or number of years provided in the financial model), and the granularity (monthly, quarterly or yearly) of the data, the Roadmap takes the flexible approach of a) providing a 5-year horizon with monthly details and b) hiding/unhiding data columns to generate, on demand, the planning horizon (1 to 5 years) and level of granularity (monthly, quarterly, yearly and any combination thereof) desired.

Scope and Navigation

As you start interacting with the Roadmap, you’ll be pleased to discover early on the VMI Navigatorä, an impressive navigation tool, which helps you, and anyone reviewing your model, see at a glance a color-coded graphic representation of the Roadmap’s framework and components, and to seamlessly navigate around the model without having to painfully scroll back and forth the copious worksheet tabs at the bottom of your spreadsheet. In summary, you can see what’s in it and can get to it with one click.

Please click on the above image to view short video

Revenue Modeling

Revenue models vary, often widely, from business to business. As a result, the usefulness of generic revenue modeling templates is generally limited. However, what good revenue models have in common is a meticulously compiled set of assumption drivers that simulate, as closely as possible, the customer acquisition, revenue recognition and cash collection practices of the business in concert with its product plan over the planning horizon. And this, with the applicable market data in perspective to avoid an aberrant disconnect between projected revenues and the market that the business is addressing. Please watch the video to see how the Roadmap is designed to adhere to this methodology using the example of a fictitious early-stage technology startup called ERP4US that designs, markets and sells SaaS ERP Software for SMBs (software as a Service Enterprise Resource Planning Software for Small to Medium Sized Businesses).

Please click on the above image to view short video

Expense Modeling 

Expense models are typically less complicated than revenue models because they tend to fall within a more standard structure: employees, consultants, office space, capital equipment and general expenses related to cost of revenues and operations. While more easily understood than revenues, expenses still must be modeled based on their relationship to various relevant drivers in the model, so they scale up and down seamlessly without requiring error prone manual adjustments every time assumptions are changed. For example, if you intend to hire a QA Manager 4 months before version 1.0 of the product is released, the hire date should be a function of the product release date and should automatically shift with it. Otherwise, imagine if the product release date is brought forward by 4 months independently from the QA staff hire date. That would leave no time for quality assurance to be timely staffed and performed. Similarly, the number of technical support staff would be a function of customers and users. Assumption changes that increase customers and users should automatically result in increases in the number of technical support staff.  

Please click on the above image to view short video

Capital Modeling 

One of the main reasons entrepreneurs develop a financial model is to quantify how much cash their start-up will need until it starts generating positive cash flow sustainably. The capital section of a financial model is critical to determine cash requirements month by month, and devise fundraising strategies that optimize valuation based on capital availability in the marketplace. This is an area of the Roadmap that one should always refer to every time assumptions are changed to assess the impact of the changes on cash requirements.

Please click on the above image to view short video

Financial Statements and Dashboards 

The culmination of the financial modeling exercise is a set of projected financial statements and dashboards that provide valuable insights into the critical financial metrics of the business over the planning horizon. The Roadmap includes the following 5-year projections: 

• Financial Summary (yearly)

• Balance Sheet (monthly)

• Income Statement by account category (monthly)

• Income Statement by department (monthly)

• Statement of Cash Flows (monthly)

• Key Metrics, which is a dashboard of key performance indicators in the model (monthly)

• Financial Ratios (yearly)

• Graphs

Valuation 

The Roadmap provides a tool to compute valuation based on data in the model and various valuation assumptions such as sales multiples, P/E, ROI and dilution factors at specific funding events.

A number of investors have given enthusiastic thumbs up to models developed by Anthony Nassar of Venture Momentum using the Roadmap. Some have gone as far as saying that these models were the best they had ever seen. 

 "I met Anthony Nassar following his presentation on "Financial Modeling for Startups" at the University of California Haas School of Business.  I've worked with startups as an attorney for Reed Smith in the firm's Venture Capital and Technology Practice Group, as an advisory board member, and venture capitalist for almost a decade.  Anthony's work product is unequalled.  It was after I saw his presentation that I decided that I had to work with him in my own venture and that any startup I was associated with should consult him for their financial modeling work.

My opinion of Anthony's work is shared.  Following a presentation of my financial model to a partner at a major VC firm in San Francisco, the partner observed that it was the most well produced financial model he had ever seen. - Jay Ward, CEO, 1stFriday.com, Inc.