How to Analyze the Financial Structure of Your Startup


Going through the main phases common to most startups, we try to give an overview of the most used financial instruments, taking into account also a free tool that allows you to project the results of the financial choices taken in a startup.

First, it is easy to understand what are the mechanisms that operate at different stages of the ‘”Financial age” of a company, then we will be able to figure out why Mark Zuckerberg owns less than 25% of Facebook, while being CEO.

The Fund Raising

Probing the startup scene, we often meet such concepts as Seed Fund, Round A Fund or Debt Fund.

Anyone trying to analyze a business idea, in order to achieve it immediately meets the primary need to raise funds, whether they are intended to cover the costs of early development of a functioning product or they are necessary to give a structure, it is necessary a requirement business: financing.

In the specific case in which we take care of startup web based, or at least of high innovative capacity, we know that among the actors in a position to support us financially we can find investors and venture capitalists.

These are people or financial organizations decide to invest money in a given business project to currently owns capital.

Substantially different from the operational point of view are the so-called Debt Fund, through which we receive funds in the form of financial resources but which will appear in the financial statements as actual debt for the start up, and vice versa as loans for the investor they you will have to return in a time the amount of money invested.

The financial instruments typically used in startup or at least part of the equity investment are called Investment Stages.

The Financial Structure

The financial structure refers to the composition of the company’s capital and in general the system through which the company goes to meet the need to raise funds.

Whenever a startup receives an investment must give up a share capital in favor of the investor, except in the case of Debt Fund, as a result at a new injection of capital will resets the startup of a new corporate balance, resulting in consolidation of percentage of ownership of each shareholder.

In these cases and others, it is useful as a service to the Equity Simulator of, needed to assess what kind of impact they will have any investments on the asset of a company, or what might be the consequences of any investment choices.

In the Equity Finance, there are usually two concepts, the Pre-Money Valuation and Post-Money Valuation. In fact they are assessments of financial, however, that allow you to better frame the startup as a separate highly variable.

The Pre-Money valuation is a financial assessment of the value of the business carried out before a round of financing, while the evaluation Post-Money is carried out immediately after.

The Post-Money valuation is the sum of the pre-money valuation and the amount of investment made.

In the case of startups, one pre-money valuation is an assessment actually very complex to structure, as if it is a seed funding, it should be running on a new company and is often the result of an evaluation expectations, because there is not available data or numeric past performance company, useful to make a comparison with similar business models within the same market, for example.

At this point in the graphical simulator mentioned before, we find a first band, dedicated at seed investment, or at least the first round of financing, and in this section you need to enter data on the pre-money valuation, namely the assessment that we will given to the first startup investment (evaluation that often, or always, is object of negotiation between the investor and the startuppers).

The higher the percentage of shares accruing to the investor in the post-money valuation, the lower will be the pre-money valuation carried out.

In the simulator of you can play in vitro and virtually about three rounds of financing.

In theory, this is the first investment seed type and two structured investment reposition type Round A, B.

In all three sections devoted to the individual investment you will have to enter the data of the assessments pre-and post-Money.

The usefulness and importance of the concepts we just tried to explore, becomes tangible when it begins the phase of financial forecast or when you structure a financial plan company.

In the present case, the tool is able to perform projections until the third round of investment and show the variations of these in a medium-long period, aspect which is of great practical importance in the moment in which it attempts to predict a possible financial performance the startup, in order to ponder the operational choices.

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