In 10 minutes, investors can gauge founder financial readiness by verifying runway maths, revenue integrity, basic cohorts, model hygiene, and reporting cadence against source statements.
The process is not about perfect models, but about consistency, clarity, and truth in numbers.
The framework below helps identify gaps in runway math, revenue integrity, cohort tracking, and finance operations early, before they become negotiation delays.
Key facts:
Runway = current bank balance ÷ monthly net burn (adjusted for committed but undrawn capital)
CAC payback between 9–18 months is workable pre-PMF if improvement is planned.
Cohorts should stabilise by months 3 to 6 and show expansion after clear product milestones.
Model hygiene means one source-of-truth model with visible driver tabs and version control signals hygiene.
Red flags: Irregular updates, undefined metrics, or runway mismatch.
Definitions and formulas:
Runway (months): Bank balance ÷ monthly net burn.
Net burn: Operating cash outflows − inflows (excluding financing).
ARR/MRR: Annual or monthly recurring revenue from contracted, repeating subscriptions or usage. State cash vs accrual clearly.
CAC payback (months): Customer acquisition cost ÷ monthly gross profit per cohort
NRR: (Starting cohort revenue + expansion − churn − contraction) ÷ starting revenue.
Contribution margin: Revenue − direct variable costs per customer.
The 10-Minute Desk Check
Use this quick framework during the first data review:
Runway math: Verify bank balance, monthly burn, and committed capital. Align across deck, model, and updates.
Revenue integrity: Confirm ARR/MRR definitions, invoices or processor proof, and cash vs accrual basis.
Cohorts at a glance: Look for a simple table showing start month, active rate, and expansion.
Model hygiene: Ensure one file, one source of truth, clear driver tabs, no hard-coded totals, and version history.
Reporting cadence: Note update frequency, close schedule, and ownership.
If two or more fail, stop and request a clean-up plan before you proceed.
Red Flags That End Diligence Early
Runway mismatch: Deck says 12 months, bank data shows 6.
Missing cohorts: No retention or usage tracking for recurring revenue.
Spreadsheet roulette: Conflicting versions, hidden formulas, or no logic trail.
Undefined costs: Cloud, data, or support costs not allocated by product.
Irregular updates: Gaps in investor reports or shifting metric definitions.
What “Ready” Looks Like
A model with clear drivers for demand, conversion, pricing, and unit costs.
Monthly KPI pack covering ARR, NRR, GAAP revenue, gross margin, cash burn, and runway.
Cohorts tracked over 6 to 12 months and a narrative on changes.
Documented close checklist and a single owner for finance ops.
A capital-use plan tied to milestones within 18 months.
How to Apply the Framework
Screening: Use the 10-minute check on inbound deals.
Term sheets: Link capital release to finance ops milestones.
Post-investment: Align on a 30-60-90 finance improvement plan and track monthly.
FAQs
1) What is the fastest way to gauge readiness?
Run the 10-minute check, then verify bank, burn, and runway against source statements.
2) Do I need cohorts for very early companies?
Yes, even two cohorts reveal retention and usage truth.
3) How strict should I be on GAAP vs cash at pre-seed?
Be flexible on presentation, reconciliation and definitions must be consistent.
4) What metrics matter most in early diligence?
Runway, burn multiple, gross margin drivers, CAC payback, and retention shape.
5) How can I de-risk weak finance ops without walking away?
Make finance improvements a condition of close milestones, with clear owners, and review progress monthly.
