How to view your business model as part of a VC pitch

Startups often lack product design and construction. But businesses are designed to make money, and over time, as unit economics and customer acquisition costs improve, they are likely to decline. Maybe. With a bit of luck.

At least that’s what your investors are betting on. This means that the business model slide should show where you are now and how the business can grow over time.

In theory, your “business model” could encompass all aspects of the business; The Business Model Canvas is one way to explore this, and you could easily spend an hour going through the entire end-to-end business model. However, for a financing pitch you probably only need a few crucial elements:

gears, or Cost of Goods Sold, is the incremental cost of each unit you deliver. For software, this is usually rounded down to zero, but for hardware products or more service-oriented businesses, unit costs can be significant.
CA, or Customer Acquisition Cost, is the cost of sales and marketing divided by the number of customers you have signed up.
LTV, the lifetime value: how much is each customer worth on average after registration?
R&D costs product development costs. This is usually not built into the business model, but if R&D costs are astronomical and never cross the cost/profit line, you may have a problem worth investigating.
The Pricing Model Usually isn’t part of the business model itself (it’s included in the LTV), but if you’re doing something unusual or creative with your pricing, it’s worth mentioning here or on your go-to-market slide to take.

Crunching those numbers and getting them right can dramatically improve the way you tell your startup story to investors.