While most entrepreneurs have completed a business plan and PowerPoint presentation prior to a first meeting, not all have finalized a financial model. A complete financial model does more than help you answer ‘How’ and demonstrate outputs (e.g., projected revenue, EBITDA, headcount, etc.); it should clearly demonstrate inputs and relationships. Put another way, the most detailed calculations and assumptions of the model should be transparent. This clarity is absolutely critical for helping VCs understand both your projections and your business. Unfortunately, most entrepreneurs submit incomplete models to VCs assuming that only the outputs are important, leaving the VC to invest time in unraveling the mess of inputs and calculations.

If you take the time to clearly format and label the inputs that drive your model, VCs will be able to gut check the reasonableness of your assumptions. If they believe the assumptions, they will be more comfortable with the output of the model.

Detailing your assumptions will also help VCs understand your business model. These inputs will demonstrate your view of what drives revenue and profitability, helping VCs to understand your logic and evaluate how your strategic plan is connected to driving financial growth.

Lastly, if the calculations in your model are easy to follow, VCs will be able both to understand how you think about your business and assess your logic. The best way to make the calculations easy to follow is by carefully formatting and labeling each cell and by limiting each cell to only basic calculations. Spread long equations out into several small calculations. While constructing the model in this way will require more cells to get through the math, it will be far easier to audit.

Remember that VCs are interested in more than the output of the model; they also want to understand the 'How'. Your model can help to answer those questions. Ultimately, creating a transparent model can help VCs understand and get excited about your company.