Why Do Investors Care About Scenario Planning?
Building a base financial model is only the first step. Every investor knows that startups rarely hit their exact projections. They want to know what happens if revenue grows faster than expected, or more critically, what happens if costs are higher or sales are slower.
Scenario planning is how you prove to investors that you have thought through the risks. By presenting a structured "Upside" (best case) and "Downside" (worst case) alongside your base model, you demonstrate financial maturity and preparedness.
How Do You Build Case Scenarios?
The case scenarios section allows you to explore alternative versions of the future without having to rebuild your entire financial model from scratch. Instead, you apply percentage or value adjustments on top of your existing base model.
1. The Positive Variance (Upside Case)
This represents your best-case scenario. You can set adjustments such as a 20% increase in revenue. As soon as you enter this, the model immediately recalculates: your total revenue jumps, net profit improves, and your cash flow chart diverges upward, creating a visually clear representation of an optimistic trajectory.
2. The Negative Variance (Downside Case)
This models what happens if things are harder than expected—which they usually are. For example, you might input a 15% decrease in expected revenue. The model will instantly show how this shortfall impacts your cash balance, net income, and runway. The chart will plot a downward trajectory, defining the range of outcomes you need to be prepared for.
Using Scenarios to Discuss Fundraising
One of the most powerful features of scenario planning is the ability to adjust your funding assumptions in real-time. During an investor meeting, they might ask, "What changes if we give you an additional £500k?"
By adjusting the funding inputs in the scenario planner, you can instantly show how that capital injection extends your runway or accelerates growth, making the conversation highly dynamic and data-driven.
Frequently Asked Questions (FAQ)
Do I need to build three separate financial models?
No. An integrated financial model allows you to build a single "Base Case" and then use percentage adjustments (e.g., +20% revenue, -10% costs) to automatically generate your Upside and Downside scenarios.
Which scenario should I present to investors?
You should be prepared to discuss all three. Pitch your Base Case as your realistic target, but use the Downside case to show you understand your risks, and the Upside case to highlight the potential return on their investment.
Can scenario planning help me decide how much to raise?
Yes. By running a Downside scenario where revenue is delayed by six months, you can see exactly how much additional cash buffer you need, helping you set a safer fundraising target.