When a VC fund is thinking about investing in a startup company, an important consideration is the future profitability and cashflow generation of that business. In order to assess this, startup companies will often produce an operating model to summarize that business's future earnings potential. These operating models can take a wide variety of different formats, but all we'll look to forecast revenues and expenses and the usage or generation of the company's cash balances, as well as important key balance sheet items.

One of the key risks for early startup companies is running out of cash, so having an understanding of how cash is being used is of vital importance for any potential investor.

In this session, we will be building an operating model for a B2B business to business, SaaS company, or software as a service. We'll be looking at this type of business since the operating model for these types of companies are somewhat different to typical manufacturing or retail companies and have some very specific drivers and metrics.

SaaS companies also make up a significant portion of the VC landscape as can be seen from this diagram, which shows that SaaS is the biggest early stage of venture capital investment type and has grown in important significantly during the years from 2010 into the early 2020s.