Sources & Uses

A common method to communicate how you will spend an investor's money is through a sources and uses table and chart. A sources and uses analysis summarizes how the incoming capital (the sources) will be spent (the uses). ^[1] The sources and uses must equal each other.

For the context of startups and fundraising, the sources of capital will typically be:

• Equity investments
• Convertible notes, SAFES
• Crypto coin sales, including ICOs (intial coin offerings)
• Bank debt
• Grants and other nondilutive capital
• Owner's contributions
• Revenue

And the uses will typically be all the costs to run the business:

• Startup and formation costs
• Salaries
• Overhead and SG&A
• Product, materials, inventory purchases
• And many other

In this context, we will typically define a time period for the uses of funds that equals the time period that the fundraising is intended to cover; i.e. if the fundraising is budgeted to provide 18 months runway, then the uses of funds will show how the funds will be spent over that 18 months.

This is usually best done using a pie chart and simple table to provide a quick graphical representation and the details.

In the Foresight models, the Sources and Uses table and chart is created automatically on the Key Reports sheet. By default, the table will be all zeros and the chart will thus not appear, but once data is populated into the model about fundraising and expenses, then the chart will appear.

For the sources, by default the model selects the first fundraising round forecasted in the model, but you can select any round in the dropdown in the Sources and Uses chart area on the Key Reports sheet. These funding round options are populated from the names of the rounds on the Forecast sheet created by the funding round forecasts.
The model will then display the start and end month used to aggregate the sources and uses for that time period, and all the formulas are based off those months. As a hack, you can always manually override the uses calculations by directly typing in the months you wish to aggregate into the start and end month cells.

Revenues are included as a sources of funds. If you have significant inventory purchases in advance of COGS, you will want to adjust this chart to make sure that it properly shows inventory purchases as an investment cost.

For the uses, the model uses the operating expenses categories created on the Costs sheet. To change the categories here, change them on the Costs sheet; if you add categories on the Costs sheet, you will likely want to add that category into this chart.
The uses table has three columns: $, %, and $, unadjusted. Here's what they mean:

• $, unadjusted (the $ will adjust for your currency symbol input in the settings) is used to calculate the actual spending on those expenses during the time period specified above.
• % is the % of the total uses that each category represents.
• $ is used calculated from the % of the total uses and the total sources, so that the sources are equal to the uses.

Why is there an adjustment? If you manually override the funding round forecast - say the model is forecasting a fundraise for 18 months of $2mm and you forecast a round of $3mm by manually inputting that number - the sources and uses would not equal unless you select a start and end date for the months that equate to that $3mm. In almost all cases, users either do not edit the # of months to fundraise setting or do not adjust this, so the sources and uses will not equal.

To adjust this, the table uses the unadjusted numbers - which represent the costs over the time period specified in the settings for the # of months to fundraise for - to calculate the % of the total costs, then calculate the adjusted $ spent by multipling the %s by the total sources, thus resulting in the sources equalling the uses.

Obviously, this could be off if there are significant one-time costs during one of the months being "adjusted", so that the %s are not the best way to calculate the actual $ spent in each category. But it is a reasonable adjustment for the cases in which users manually override the funding forecast and need to also adjust their uses of funds to match.

More about presenting your financials for fundraising here ›