Startup financial statements investors actually read: P&L to MIS
Authored By - Hemanth Aligingi, Senior Executive at Outsource360
Two numbers tell the story of Builder.ai's collapse in May 2025. The first is $220 million, the 2024 sales figure a lender group led by Viola Credit had been told to expect from the UK-based AI app-building company, which counted Microsoft among its backers. The second is about $55 million: the figure after an internal audit, according to the Financial Times as reported by silicon.co.uk. Few recent cases show as plainly what investors and lenders actually rely on: not the number in the pitch, but the startup financial statements that survive an audit.
It wasn't a fringe business. Builder.ai had raised more than $500 million and was valued at about $1.5 billion, and its backers included Qatar's sovereign wealth fund as well as Microsoft, silicon.co.uk reported. The revision reached back a year, too: previously reported 2023 sales of $180 million were restated to roughly $45 million (the FT again, via silicon.co.uk).
Our arithmetic: both years came in at about a quarter of the earlier figure, because 55 is 25% of 220 and 45 is 25% of 180. That isn't a rounding error.
What happened next was settled on the balance sheet. According to Bloomberg, as reported by silicon.co.uk, after revised figures were submitted by an independent auditor, the lenders declared a default and seized about $37 million from the company's bank accounts. The company then told staff it would begin insolvency proceedings.
The doubts were months older. Bloomberg's report, as silicon.co.uk relays it, dates concerns about the company's real sales figures to December 2024. In March 2025 Bloomberg reported inflated revenues; by then the company had cut 270 staff and installed a new chief executive, as Rest of World recounts.
Look at what the lenders acted on. Not the pitch figure, but the audited revision, and the one balance-sheet line they could reach: cash.
Investors read a startup the same way, only more slowly. The deck earns the meeting. The P&L, the balance sheet and the cash flow statement decide the terms, and the monthly MIS (the management information system report, called management accounts in the UK) is judged by whether it agrees with them. A pitch can round up, but the statements can't, because every figure in them has to reconcile to another figure somewhere else: the loss to the cash, the cash to the bank, the revenue to the invoices.
Most founders will never watch a lender sweep an account. But every founder who raises money sends numbers that someone later reconciles: at the next round, in due diligence, at the first audit. The real question is which documents investors open, and in what order. What must each one show, and how do they tie together, so that the monthly pack holds up the day someone checks it?
Startup financial statements are the P&L (profit and loss account), balance sheet and cash flow statement, with a statement of changes in equity and notes. Investors read them alongside a monthly MIS or management accounts. A new investor starts with revenue size and growth; an existing one starts with cash and runway, then margins, liabilities and unit economics.
The sections below take each document in the order investors open it, carry one example company's numbers through the P&L, balance sheet, cash flow statement and a one-page MIS, and set out what investors are owed in the US, UK and India. Country rules are labelled.
On this page
Which startup financial statements do investors read first?
What investors check in a startup P&L
What investors look for in a startup balance sheet
What investors look for in a cash flow statement
What goes in an MIS report for investors?
Unit economics investors ask for, by business model
Adjusted EBITDA and other non-GAAP numbers: what investors accept
What investors are owed: information rights, deadlines and audits
Red flags investors spot in startup financial statements
Frequently asked questions about startup financial statements
Which startup financial statements do investors read first?
Which startup financial statements do investors read first? It depends on who is reading. A prospective investor starts with revenue size and growth on the P&L; an existing investor opens the monthly pack at cash and runway, then both check margins, liabilities, cash flow and unit economics.
Document | The question it answers | What investors check first | Red flag |
MIS summary page | How long does the cash last, and what changed? | Closing cash and months of runway | Runway from the bank balance, with no burn trend |
P&L (income statement) | How big is the business, and how fast is it growing? | Revenue trend and gross margin | Growth with falling gross margin, or one-off revenue shown as recurring |
Balance sheet | What does the company owe, and what is it owed? | Cash, receivables, deferred revenue and debt | Receivables growing faster than revenue; loans to founders |
Cash flow statement | Where did the cash actually go? | Operating cash flow against the net loss | Operating cash outflow far above the loss, month after month |
Statement of changes in equity and cap table | Does equity match the money raised and the share register? | Paid-in capital against rounds closed | Equity that does not tie to the cap table |
KPI and unit-economics page | Does each customer or order make money? | Retention, contribution margin and CAC payback | Blended figures, no cohorts |
Budget vs actual | Is the plan holding? | Revenue and burn variances | Unexplained variances, or a budget reset every quarter |
Sources: a16z (size, then growth) and Collaborative Fund (runway); the rest is our synthesis.
Financial statements for investors: the reading order in a private startup
Search for financial statements for investors and most results address buyers of listed shares (10-K footnotes, P/E ratios); a private startup's investors get a private pack under their information rights.
A prospective investor sizes the business first: investors "often look at GMV, revenue, and bookings first because they're an indicator of the size of the business", a16z wrote in 2015, then turn to growth. An existing investor starts with cash. A Collaborative Fund staffer who read 1,000 investor reports in a year calls 12 or more months of runway "breathing easy"; less puts a company on the "will be raising soon" radar.
So which statement matters most? None on its own; it depends on the question and the stage. In practice, keep the order stable so the board sees what it expects.
What a full set of startup financial statements includes
A full set has five parts: the balance sheet, the P&L (income statement), the cash flow statement, the statement of changes in equity and the notes. Break-even analysis isn't one.
India. Section 2(40) of the Companies Act, 2013 lists these five, the statement of changes in equity "if applicable".
United Kingdom. Companies House says accounts generally hold a P&L, a director-signed balance sheet and notes.
United States. The NVCA model investor rights agreement lists a balance sheet and income, cash flow and equity statements.
A financial model forecasts these statements. But once a company has traded, a pro forma won't replace last year's actuals.
What investors check in a startup P&L
Investors read a startup P&L for three things: revenue and how fast it grows, how much of each revenue dollar survives the cost of delivering it (gross margin), and how fast operating costs grow against both. They also check that revenue is recognised as the service is delivered, not when it's billed.
Revenue: recognised revenue, bookings, ARR and GMV
Four different "revenue" numbers circulate in startup decks. Bookings are contracts signed; revenue is recognised as the service is delivered, and the gap, once billed, sits on the balance sheet as deferred revenue. ARR (annual recurring revenue) "should exclude one-time fees, professional service fees, and any variable usage fees", according to a16z's second metrics list, so it isn't annual run rate (this month's total revenue x 12).
GMV (gross merchandise value) is the value of orders passing through a marketplace; revenue is what the company keeps. Investors want net revenue on the P&L and GMV as a KPI, and they'll catch the classic error (booking the full order value when the company keeps only a commission). Worth flagging: gross profit isn't "net revenue" either. Net revenue is revenue after returns, discounts or pass-through amounts; gross profit is revenue less cost of revenue.
So which revenue number goes in the pack? All of them, labelled. Founder forums carry a familiar puzzle: a marketplace seller with large monthly sales who can't raise. Our reading: investors value the margin left after fees, fulfilment and ads, not the sales.
Gross margin and costs: the example company's P&L
The example company (hypothetical) is a Delaware-incorporated B2B software company selling annual and monthly subscriptions to mid-market customers, with engineers employed through an Indian subsidiary and 22 staff at year end. Figures are consolidated, in US$ thousands, with no debt, interest income, tax or currency effects; all deferred revenue relates to contracts of 12 months or less.
Line (US$ thousands) | Year | % of revenue |
Revenue | 2,400 | 100.0% |
Cost of revenue | (600) | 25.0% |
Gross profit | 1,800 | 75.0% |
Sales and marketing | (1,500) | 62.5% |
Research and development (after capitalising 400) | (900) | 37.5% |
General and administrative | (600) | 25.0% |
Net loss | (1,200) | (50.0%) |
The costs include two non-cash items: stock-based compensation of 150 and amortisation of capitalised software of 100. Budget for the year: revenue 2,600, net loss (1,100).
Sources: example company (hypothetical); our figures.
A 75% gross margin sits close to Benchmarkit's 2025 private-SaaS median of 77% on total revenue (81% on subscription revenue) and above Bessemer's advice to "aim for 65-70% gross margins over time". In 2015, a16z put software margins "in the 80%-90% range" and e-commerce far lower, with Amazon at 27%. Bottom line: quote a benchmark with its source, year and range, never a single threshold.
The line we'd expect investors to question first, though, is sales and marketing at 62.5% of revenue, against Benchmarkit's 47% for VC-backed companies (33% for PE-backed). Research and development appears after capitalising $400,000, so total development spend was $1.3 million, almost a third of it capitalised: show both figures. Whether a one-off cost such as a logo design is expensed or capitalised is a policy call under the applicable accounting standard; investors check that it's consistent and disclosed.
What investors look for in a startup balance sheet
Investors read a startup balance sheet to see what the company owns, what it owes and to whom. They check cash against burn, receivables that customers will actually pay, deferred revenue (cash collected for work not yet done), any debt and its terms, and equity that reconciles to the money raised and the cap table.
Cash, receivables and deferred revenue: the example company's balance sheet
Line (US$ thousands) | Start of year | End of year | Change |
Cash | 3,000 | 2,100 | (900) |
Accounts receivable | 200 | 400 | 200 |
Capitalised software, net | 300 | 600 | 300 |
Total assets | 3,500 | 3,100 | (400) |
Accounts payable and accrued expenses | 200 | 250 | 50 |
Deferred revenue | 500 | 1,100 | 600 |
Paid-in capital | 5,800 | 5,950 | 150 |
Accumulated deficit | (3,000) | (4,200) | (1,200) |
Total liabilities and equity | 3,500 | 3,100 | (400) |
Check: 3,500 = 700 of liabilities + 2,800 of equity at the start; 3,100 = 1,350 + 1,750 at the end.
Sources: example company (hypothetical); our figures.
Why did cash fall by only $900,000 when the P&L showed a $1.2 million loss? The short answer sits in the cash flow statement. Receivables doubled to $400,000, about two months of revenue. And deferred revenue more than doubled to $1.1 million: service the company still owes customers who've already paid.
A booking "goes onto the balance sheet in a liability line item called deferred revenue", a16z explains, and "for a 24-month deal, as each month goes by deferred revenue drops by 1/24th and revenue increases by 1/24th". At both dates the golden rule holds: assets equal liabilities plus equity.
India. Since 1 April 2021, Schedule III to the Companies Act, 2013 has required statutory statements to disclose 11 ratios, including the current ratio, with an explanation of any change of more than 25% on the previous year, plus ageing schedules for receivables and payables. On the example company's figures the current ratio (cash and receivables over payables and deferred revenue) fell from 4.6 to 1.9, about 60%, which an Indian company would have to explain in its notes (our calculation).
Balance sheet red flags investors look for
What most people miss: some warning signs sit on the balance sheet alone. Loans to founders or directors and receivables from related parties come first, then receivables growing faster than revenue or carried long past due. After those: deferred revenue falling while the company says bookings are growing, capitalised costs rising year after year (the example company doubled its capitalised software to $600,000), debt with covenants the MIS never mentions, and equity that doesn't reconcile to the rounds closed and the share register.
Equity is where the cap table meets the accounts. (In the US, the NVCA model even asks for a cap-table statement every quarter.) The example company's paid-in capital rose by $150,000 with no round, because stock-based compensation is credited to equity without cash changing hands. An investor checks paid-in capital against the rounds closed plus that credit; whether the cap table matches the legal paperwork gets tested later, in due diligence.
What investors look for in a cash flow statement
The cash flow statement shows where cash came from and went, split into operating, investing and financing activities. Investors read it to see how far cash burn differs from the reported loss, and why. Small companies in India and the UK may legally omit it. Investors ask anyway.
Net loss is not operating cash flow: the example company's cash flow statement
Line (US$ thousands) | Year |
Net loss | (1,200) |
Add back: stock-based compensation | 150 |
Add back: amortisation of capitalised software | 100 |
Increase in receivables | (200) |
Increase in deferred revenue | 600 |
Increase in payables and accruals | 50 |
Net cash used in operating activities | (500) |
Capitalised software development (investing) | (400) |
Financing activities (no round this year) | 0 |
Net decrease in cash | (900) |
Cash of 3,000 at the start, less 900, leaves 2,100 at the end: the balance-sheet figure.
Sources: example company (hypothetical); our figures.
Three gaps separate loss from cash, starting with $250,000 of non-cash costs. Working capital adds a net $450,000: customers prepaid $600,000, receivables absorbed $200,000 and unpaid bills added $50,000 (timing managed through the cash conversion cycle and a 13-week forecast). And $400,000 of development spend bypassed the P&L as an investing outflow. Treating operating cash flow as the net loss, as one AI summary does, is $700,000 out here.
Here's the thing: the error's direction matters more. This year $600,000 of cash came from customers paying in advance; strip it out and cash out was $1.5 million, or $125,000 a month rather than $75,000. So if deferred revenue stops growing next year, the $2.1 million in the bank lasts about 17 months at that rate, not 28 (our calculation). Count a whole annual contract in month one, a Reddit commenter warns, "and nobody in the room believes it".
Who must prepare a cash flow statement, and why investors ask anyway
India. Under section 2(40) of the Companies Act, 2013, a One Person Company, small company or dormant company "may not include the cash flow statement". Small means paid-up capital up to Rs 10 crore and turnover up to Rs 100 crore (G.S.R. 880(E), 1 December 2025). Section 2(85) excludes public, holding and subsidiary companies, so the example company's Indian subsidiary doesn't qualify.
United Kingdom. Small entities applying Section 1A of FRS 102 aren't required to prepare one. For financial years starting on or after 6 April 2025, small means at least two of: turnover up to GBP 15 million, balance sheet total up to GBP 7.5 million, no more than 50 employees, per Companies House.
United States. No federal rule requires a typical VC-backed startup to prepare one. California Corporations Code section 1501 requires a California corporation's annual report, "not later than 120 days after the close of the fiscal year", to contain a balance sheet, an income statement and a statement of cashflows, unless a company with fewer than 100 holders of record waives it in its bylaws. The standards are ASC 230 (FASB, via Deloitte DART) and IAS 7 (IASB).
Why ask anyway? Investor rights agreements typically require cash flow statements annually and quarterly. And from 1 January 2027, IFRS 18's amendments to IAS 7 start the indirect method from operating profit; for most companies interest and dividends paid become financing, interest and dividends received investing.
What goes in an MIS report for investors?
An MIS report for investors is a monthly management pack: a summary page with cash and runway, the P&L against budget, the balance sheet, a cash summary, KPIs and unit economics, and short variance commentary. No statute defines its format; the investment documents and board decide.
A summary page: closing cash, net burn, runway and this month's three biggest changes.
The P&L for the month and year to date against budget, with material variances explained.
The balance sheet, with ageing for overdue receivables and payables.
A cash summary that ties closing cash to the bank statements.
Revenue detail: recurring and one-off revenue, bookings, deferred revenue, top customers' share.
A KPI page: retention, contribution margin and CAC payback, by cohort where possible.
Headcount against plan, because every hire changes the monthly burn.
Asks and decisions: what the board or investors should approve or help with.
One pack, three names: MIS, management accounts and monthly financials
India says MIS, the UK management accounts, the US monthly financials. Fair warning: "MIS" alone pulls up government-scheme reports, so say startup MIS. We found no statutory definition of either term in the Companies Act, 2013 or the UK guidance read for this post: the right to monthly information is contractual.
Feature | MIS or management accounts | Statutory financial statements |
Purpose | Running the business; reporting to board and investors | A true and fair view for shareholders and the public record |
Frequency | Monthly, sometimes weekly or quarterly | Annual (plus interim reports for listed companies) |
Format | Whatever the board and investment documents set | Prescribed: Schedule III (India); Companies Act formats and FRS 102 (UK); US GAAP (US) |
Content | Budgets, forecasts, KPIs and adjusted measures allowed | Historical figures under accounting standards, with notes |
Assurance | Unaudited | Audited where the law or investors require it |
Public filing | Never | UK: Companies House. India: Registrar of Companies. US private company: none |
Sources: s.129 and s.137 (India), FRS 102, Companies House.
The investor update is a short email built from the MIS, and the board pack adds decisions; management accounting serves insiders, financial reporting outsiders.
A one-page MIS for the example company
The example company's (hypothetical) year-end page puts cash and runway on top, then revenue of $2.4 million against a $2.6 million budget (7.7% short), gross margin, a loss $100,000 worse than budget and the balance-sheet lines that moved. KPIs and three commentary lines follow; the first explains why burn looks lower than the loss: customers now prepay annually. The page shows months of cash at the year's average burn (28) and at the burn if prepayments stop growing (about 17), then points to a runway forecast built under three scenarios. In our view, a spreadsheet pack is fine at seed if every number comes from closed books.
Building the pack from the monthly close, and tying it to the bank
The pack is only as good as a monthly close that runs in the right order, which starts to matter "the first time decisions start depending on the numbers", one founder thread notes. Finance leads on r/CFO describe roughly "20% on your own sections" and "80% chasing, reconciling"; one fix is a locked slide per function (KPI, actual, plan, variance, one-sentence why).
Which line first? Cash. A Delhi Police Economic Offences Wing FIR in the GoMechanic case alleges, as reported by Inc42, that investors were shown liquid cash positions inflated by Rs 10 crore to Rs 39 crore in each monthly statement between March and July 2022. These are allegations, not findings of any court.
Tie cash to bank statements, revenue to invoices, deferred revenue to contracts and the year-end MIS to the statutory accounts; automating that makes the pack cheaper and more credible (our inference). Later comes how due diligence tests the MIS against source systems.
Unit economics investors ask for, by business model
Investors ask for unit economics that fit the business model: retention and CAC payback for subscription software, contribution margin per order for e-commerce and D2C brands, take rate and repeat use for marketplaces. Define each, show it by cohort and reconcile it to the P&L rather than blending one flattering number.
Business model | Metrics investors typically ask for | How to present them | Benchmark, with its caveat |
B2B SaaS | ARR, net and gross revenue retention, CAC payback, gross margin | By cohort and segment; payback on gross-margin-adjusted ARR | Median NRR 101% and GRR 91% (SaaS Capital, 2025 survey); CAC payback under 12, 18 or 24 months for SMB, mid-market or enterprise (Bessemer's guidance, 2021) |
D2C and e-commerce | Contribution margin per order (CM1, CM2, CM3), repeat purchase rate, CAC | CM layers per order, by first-order month, each layer's costs defined | No standard definition of CM1-CM3; a16z (2015) put e-commerce gross margins far below software's |
Marketplace | GMV, take rate (net revenue as a share of GMV), contribution margin, repeat use | Net revenue on the P&L and GMV as a KPI; cohorts by first-order month | No graded public benchmark: show your own trend |
Services and outsourcing | Gross margin by client and service line, utilisation, customer concentration | Largest clients' share of revenue, monthly | a16z prefers "relatively low customer concentration"; no numeric benchmark |
Sources: SaaS Capital, Bessemer, Dema, a16z.
Presenting unit economics: cohorts and contribution-margin layers
Show revenue by the month each customer group started: a blended figure hides a weak recent cohort, or as one operator put it, "Blended NRR hides everything". Average revenue per customer by signup month catches recurring revenue inflated by discounts.
Contribution margin comes in layers: CM1 is net sales less product cost, CM2 also deducts fulfilment (picking, packing, shipping) and CM3 marketing spend. No standard-setter defines them, so state yours. Unlike gross margin, contribution margin deducts every variable cost of serving the unit. And contribution per unit times units should tie to the P&L, or investors discount it.
Unit economics benchmarks investors quote, and their caveats
Worth knowing: the 3:1 LTV to CAC ratio traces to a January 2013 SaaS metrics guide that put the best SaaS businesses "higher than 3" and called its numbers "only guidelines". Compute lifetime value on profit: "A common mistake is to estimate the LTV as a present value of revenue", a16z warned.
Bessemer measures CAC payback on gross-margin-adjusted ARR, and its $1-10 million ARR portfolio averaged 15 months; the 2023 KeyBanc and Sapphire Ventures survey put the 2022 median at about 23 months. SaaS Capital calls 90% gross retention "table stakes"; Bessemer's roughly 120% net is a top fund's portfolio target (far above the survey median).
The catch? The 2015 post that described the Rule of 40 meant it for SaaS companies "at scale", with at least $50 million in revenue: a poor test at seed. SaaS Capital reports scores have "contracted noticeably".
Which benchmark should you quote? Both, with dates: the example company's 20-month payback misses Bessemer's under-18 mid-market guidance but beats the 2022 median. One operator says investors now favour payback because LTV:CAC "is easy to game".
Adjusted EBITDA and other non-GAAP numbers: what investors accept
Investors accept adjusted EBITDA and similar figures when each is clearly labelled, reconciled line by line to statutory profit or loss, and stripped only of costs that won't recur. Remove recurring costs such as marketing and it needs a different name.
The WeWork test: EBITDA add-backs that remove recurring costs
In its April 2018 debut bond sale, WeWork presented "community adjusted EBITDA", which removed interest, taxes, depreciation and amortisation plus marketing, general and administrative, and development and design costs. On that basis it reported $233 million for 2017, a year with $886 million of revenue and a net loss of $934 million (Crunchbase News, citing the Wall Street Journal).
SEC rules bind only registrants, but founders borrow them. Regulation G requires the most directly comparable GAAP measure and a reconciliation. Item 10(e) of Regulation S-K adds equal or greater prominence and bars adjustments that "eliminate or smooth items identified as non-recurring, infrequent or unusual" if such a charge is reasonably likely to recur within two years or occurred in the prior two. SEC staff interpretations were updated in December 2022.
Is a quarter that's "profitable" only after adjustments really profitable? No. Audited GAAP or IFRS figures are profit, non-GAAP ones management's view. Our recommendation: run the two-year test on every add-back.
IFRS 18 and the 2027 rules for adjusted measures
IFRS 18 Presentation and Disclosure in Financial Statements, issued by the IASB, applies to annual periods beginning on or after 1 January 2027. It replaces IAS 1, adds two required P&L subtotals (operating profit; profit before financing and income taxes) and requires publicly used management-defined performance measures to be reconciled in the notes. The EU endorsed it in February 2026. Unit-economics metrics such as CAC and NRR aren't income-and-expense subtotals, so they fall outside it; adjusted EBITDA usually falls inside.
United Kingdom. In February 2026 the FRC aligned FRS 102's "adapted formats" with IFRS 18, for periods beginning on or after 1 January 2027.
India. NFRA has recommended Ind AS 118, India's IFRS 18, for periods beginning on or after 1 April 2027, but the MCA's August 2026 Ind AS amendment left it out (KPMG India): proposed, not notified.
United States. ASU 2024-03 makes public business entities, not private companies, disaggregate expenses by nature for fiscal years beginning after 15 December 2026. Private startups escape this. But tagging MIS expenses by function and nature now avoids a re-map at a first IFRS, Ind AS or IPO audit, and investors, in our view, will expect listed-company-style reconciliations.
What investors are owed: information rights, deadlines and audits
Startup financial reporting for investors depends mostly on the contract, not the law. Statute gives shareholders little beyond annual accounts and limited inspection rights; monthly reporting, deadlines, budgets and audits come from the investment documents' information-rights clause. Read it first.
What investors receive | Typical timing | Where the obligation comes from |
Monthly management accounts (MIS) | Within 30 days of month end, where agreed; often omitted early on | Contract only: investor rights, shareholders' or investment agreement |
Quarterly unaudited statements | Within 45 days of each quarter end | NVCA model investor rights agreement (October 2025) |
Annual budget | Before the new financial year | Investor rights or shareholders' agreement |
Annual statements to investors | Within 90-180 days of year end, audited where negotiated | US-style investor rights agreements; California corporations: annual report within 120 days (s.1501) |
Statutory annual accounts | UK private company: filed within 9 months of year end. India: to members 21 days before the AGM; filed within 30 days of it | Companies House rules; Companies Act 2013 s.136 and s.137 |
Books and records on demand | Delaware: 3 years of annual statements, on a sworn, proper-purpose demand. India: any director may inspect the books of account | Delaware General Corporation Law s.220; Companies Act 2013 s.128(3) |
Investor information rights in the US, UK and India: law and contract
United States. The NVCA model limits these rights to "Major Investors" and allows 180 days for annual statements (120 suggested if unaudited). Its inspection clause says the company need not "create any new information or materials": one standard pack, not bespoke reports. And it asks investors to waive their Delaware section 220 rights until an IPO.
That statute, amended in 2025, is only a floor, needing a sworn, good-faith, proper-purpose demand. One investor forum's verdict: "You get what you negotiated for. Not what you paid for."
United Kingdom. The 2025 BVCA model documents, Davis Polk reports, let boards withhold or redact information from investor directors and observers in conflict or confidentiality cases. From 1 April 2028, small and micro companies must file a P&L at Companies House (with a publication opt-out still to be confirmed), abridged accounts end and all accounts go through software. Keep it reconcilable to the MIS: the state sees it, published or not.
India. Beyond the table's Companies Act, 2013 rights, including a nominee director's inspection right, everything comes from the shareholders' agreement.
Audited or unaudited financial statements: what investors expect by stage
Stage | What investors typically ask for | Assurance |
Pre-seed | Cap table, key contracts and projections showing venture scale | None |
Seed | A regular update: cash, burn, revenue and a few KPIs | Unaudited |
Series A | A monthly MIS (P&L against budget, balance sheet, cash, unit economics) and quarterly statements | Unaudited monthly; an annual audit often negotiated |
Series B and later | Full statements, an approved budget and a board pack | Audited annual statements, usually required |
Common practice, not rules. Sources: community reports (pre-seed); MoFo (audits early); the NVCA model.
Need an audit at seed? Often not: "it is not unusual for early stage companies to provide unaudited financials until later rounds of financing", MoFo notes. A review gives limited assurance and a compilation none, under the AICPA's SSARS.
Byju's statutory auditor resigned in June 2023, writing that the FY22 statements were "long delayed" and it had "not been able to commence the audit" (TechCrunch). Investors may also ask management to certify unaudited statements, shifting the risk of error to management.
Investor updates and board packs: structure and cadence
Collaborative Fund's advice: share "financial performance, progress on key initiatives, major developments, 'asks' for investors", pick one day a month, and "Never miss a date." Keep asks separate, and never go quiet.
Monthly is common early and "quarterly is more standard" later, founders on r/startups say; one went quarterly, with lawyer review, after investors treated every word as "a legally binding claim". Board packs add decisions. One r/CFO poster says PE backing tripled reporting requirements; on r/SaaS, a board wanted the AI coding spend justified. Which raises who should produce the numbers as a startup grows, and what that costs.
Red flags investors spot in startup financial statements
The red flags that matter most appear only when a startup's financial statements are read together: revenue that grows while deferred revenue shrinks, receivables that outpace sales, cash burn far from the reported loss, and management figures that disagree with the audited accounts. Each takes minutes to check, which is why investors check.
Revenue grows while deferred revenue falls, a sign that new bookings are slowing behind the P&L.
Receivables grow faster than revenue, so sales are booked that customers haven't yet paid for.
Operating cash outflow runs far above the net loss, month after month.
Burn looks better than the loss only because customers prepaid or billing terms changed.
Capitalised development keeps rising while the research and development expense line falls.
MIS revenue, cash or headcount disagrees with the statutory accounts, bank statements or payroll.
Prior-year figures are restated, or the annual audit arrives late.
Adjusted EBITDA adds back costs that recur every year, such as marketing or salaries.
Innocent explanations for red flags, and what to write before investors ask
Does a flag prove something's wrong? Not always: seasonality, a switch to annual billing or a large customer on long payment terms can each explain one. Write the cause into the commentary before investors ask, as the example company (hypothetical) does for items 4 and 5 on its own MIS page. Frankly, this gets overlooked: one accountant asking VCs what they want in a monthly report complained that updates are unreliable when founders don't understand their own finances.
Financial statements before a raise: reconcile first, then send
Founder forums largely agree on the basics. A company that has traded brings last year's balance sheet, income statement and cash flow statement; a pre-revenue one brings projected cash flows, and at pre-seed "it's usually pretty minimal". Our advice: send the full pack to investors under confidentiality, and give the press only the numbers you're happy to see quoted. And reconcile the cap table to the share register before a diligence team does it for you.
Frequently asked questions about startup financial statements
What are the five basic financial statements?
The balance sheet, the profit and loss account (income statement), the cash flow statement, the statement of changes in equity, and the notes. Break-even analysis is sometimes listed among them, but it's a planning tool, not a financial statement.
What is MIS in simple words?
MIS stands for management information system. In startup finance it usually means the monthly management report: P&L against budget, balance sheet, cash and runway, and KPIs. UK companies call it management accounts; US founders often say monthly financials.
What is deferred revenue, and why do investors care?
Deferred revenue is an amount billed or collected before the service is delivered. It sits on the balance sheet as a liability and becomes revenue as the service is delivered, so a growing balance signals revenue to come and a shrinking one can mean slowing bookings.
What are CM1, CM2 and CM3?
Layers of contribution margin, common in D2C and e-commerce. CM1 is net sales less product cost; CM2 also deducts fulfilment (picking, packing, shipping); CM3 also deducts marketing spend. Definitions vary, so state yours in the pack.
Does a small company have to prepare a cash flow statement?
Often not. In India a one person, small or dormant company may omit it (Companies Act 2013, s.2(40)), and UK small entities using FRS 102 Section 1A need not prepare one. Investors usually ask for it anyway, and US-style investor agreements list it.
Do investors need audited financial statements from a startup?
Often not at first: early rounds commonly accept unaudited accounts because audits are costly. The NVCA model allows 180 days for annual statements and leaves the audit to negotiation. Local law may require an audit anyway.
Is a startup legally required to send investors monthly reports?
Not under the US, UK or Indian rules covered here. The law gives shareholders little beyond annual accounts and limited inspection rights; monthly and quarterly reporting comes from the information-rights clause in the investment documents.
How often should a startup send investor updates?
Monthly is common early on, and founders say quarterly becomes more standard later. Check the contract: US-style investor rights agreements typically set quarterly statements within 45 days of each quarter end and, where agreed, monthly within 30 days.
What should a monthly investor update include?
Headline numbers reported the same way every month (revenue, burn, cash and runway), progress on key initiatives, major developments and specific asks. Pick one day each month to send it, and never miss a date.
Who prepares the MIS report in a startup?
Usually a founder at first, then a bookkeeper or accountant, then a finance lead, controller or virtual CFO as reporting grows. Whoever prepares it, the figures should come from a closed month and tie to the bank statements.
Which financial statement is most important to investors?
No single one. A prospective investor starts with revenue size and growth on the P&L; an existing investor watching burn starts with cash. The cash flow statement then shows whether the reported loss matches the cash actually spent.
What is the difference between management accounts and financial statements?
Management accounts are internal, monthly, unaudited and in whatever format the board and investors agree. Statutory financial statements are annual, follow prescribed formats and accounting standards, are audited where required and, in the UK and India, are filed publicly.
What is the difference between EBITDA and adjusted EBITDA?
EBITDA is profit before interest, tax, depreciation and amortisation. Adjusted EBITDA removes further items that management treats as one-off, such as restructuring costs. Investors accept it when every adjustment is listed, reconciled to statutory profit, and none recurs.
What is a good LTV to CAC ratio?
A ratio of 3:1 is the common heuristic. It traces to a 2013 SaaS guideline that the best businesses exceed 3, which the source itself calls only a guideline. Compute lifetime value on profit, not revenue, or the ratio flatters you.
What is a good CAC payback period?
Bessemer's guidance is under 12 months for SMB-focused software, under 18 for mid-market and under 24 for enterprise, measured against gross-margin-adjusted ARR. The 2023 KeyBanc and Sapphire Ventures survey put the 2022 median at about 23 months.
What is a good net revenue retention rate for a private SaaS company?
SaaS Capital's 2025 survey of more than 1,000 private B2B SaaS companies found median net revenue retention of 101% and gross retention of 91%, and called 90% gross retention table stakes. A top fund's net retention target, about 120%, runs far higher.
References
Statutes, regulators and official guidance come first, then standard-setters and the NVCA model agreement, then data and research (most recent first), then professional commentary and reporting (most recent first).
US Securities and Exchange Commission, Regulation G, 17 CFR 244.100, General rules regarding disclosure of non-GAAP financial measures, text via the eCFR, accessed 24 September 2026, ecfr.gov.
US Securities and Exchange Commission, Regulation S-K, 17 CFR 229.10 (Item 10, General), paragraph (e) on the use of non-GAAP financial measures in Commission filings, text via the eCFR, accessed 24 September 2026, ecfr.gov.
US Securities and Exchange Commission, Division of Corporation Finance, Non-GAAP Financial Measures: Compliance and Disclosure Interpretations, last updated 13 December 2022, sec.gov.
State of Delaware, Delaware General Corporation Law, Title 8, section 220 (inspection of books and records), as amended in 2025, accessed 24 September 2026, delcode.delaware.gov.
State of California, Corporations Code section 1501 (annual report to shareholders), accessed 24 September 2026, leginfo.legislature.ca.gov.
European Commission, Commission Regulation (EU) 2026/338 of 13 February 2026 amending Regulation (EU) 2023/1803 as regards International Financial Reporting Standard 18, Official Journal of the European Union, 16 February 2026, eur-lex.europa.eu.
Companies House, Preparing and filing Companies House accounts (formerly Life of a company: annual requirements, part 1: accounts), updated 30 June 2026, gov.uk.
Companies House, Changes to accounts (accounts filing changes from 1 April 2028), updated 17 June 2026, gov.uk.
Parliament of India, Companies Act, 2013, section 2 (definitions, including clause 40, financial statement, and clause 85, small company), text via Indian Kanoon, accessed 24 September 2026, indiankanoon.org.
Parliament of India, Companies Act, 2013, section 128 (books of account; a director's right of inspection), text via Indian Kanoon, accessed 24 September 2026, indiankanoon.org.
Parliament of India, Companies Act, 2013, section 129 (financial statement; true and fair view; Schedule III), text via Indian Kanoon, accessed 24 September 2026, indiankanoon.org.
Parliament of India, Companies Act, 2013, section 136 (right of member to copies of audited financial statement), text via Indian Kanoon, accessed 24 September 2026, indiankanoon.org.
Parliament of India, Companies Act, 2013, section 137 (copy of financial statement to be filed with Registrar), text via Indian Kanoon, accessed 24 September 2026, indiankanoon.org.
Ministry of Corporate Affairs, Notification G.S.R. 207(E) of 24 March 2021 amending Schedule III to the Companies Act, 2013 (ratios and ageing schedules, effective 1 April 2021), Gazette of India, Extraordinary, egazette.gov.in (PDF).
Ministry of Corporate Affairs, Year-end review 2025, released by the Press Information Bureau, 1 January 2026 (records G.S.R. 880(E) of 1 December 2025, which set small-company limits of Rs 10 crore paid-up capital and Rs 100 crore turnover), pib.gov.in.
National Financial Reporting Authority, record note of the 22nd meeting of the Authority, 22 December 2025 (recommends Ind AS 118 for annual periods beginning on or after 1 April 2027), s3waas.gov.in (PDF).
IFRS Foundation (International Accounting Standards Board), IFRS 18 Presentation and Disclosure in Financial Statements, issued April 2024, effective for annual periods beginning on or after 1 January 2027, ifrs.org.
IFRS Foundation (International Accounting Standards Board), IFRS 18 Presentation and Disclosure in Financial Statements: Project Summary (including the amendments to IAS 7), April 2024, ifrs.org (PDF).
IFRS Foundation (International Accounting Standards Board), IAS 1 Presentation of Financial Statements (in force until replaced by IFRS 18), accessed 24 September 2026, ifrs.org.
IFRS Foundation (International Accounting Standards Board), IAS 7 Statement of Cash Flows (as amended by IFRS 18 from 1 January 2027), accessed 24 September 2026, ifrs.org.
Financial Accounting Standards Board, Accounting Standards Codification Topic 230, Statement of Cash Flows, text via Deloitte DART, accessed 24 September 2026, dart.deloitte.com.
Financial Accounting Standards Board, FASB Issues Standard That Improves Disclosures about Income Statement Expenses (ASU 2024-03, Expense Disaggregation Disclosures, Subtopic 220-40), news release, 4 November 2024, fasb.org.
Financial Reporting Council, FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (including Section 1A Small Entities), accessed 24 September 2026, frc.org.uk.
Financial Reporting Council, FRC maintains international alignment for companies applying adapted formats in financial statements (amendments to FRS 102 following IFRS 18, for periods beginning on or after 1 January 2027), 18 February 2026, frc.org.uk.
American Institute of Certified Public Accountants (AICPA and CIMA), Preparation, Compilation, and Review Standards (Statements on Standards for Accounting and Review Services, including SSARS No. 21), accessed 24 September 2026, aicpa-cima.com.
National Venture Capital Association, NVCA Model Investors' Rights Agreement (updated October 2025), nvca.org.
SaaS Capital, What is a Good Retention Rate for a Private SaaS Company in 2025? (2025 B2B SaaS retention benchmarks), 18 September 2025, saas-capital.com.
SaaS Capital, Growth, Profitability, and the Rule of 40 for Private SaaS Companies, 21 August 2025, saas-capital.com.
Benchmarkit, 2025 B2B SaaS Performance Metrics Benchmarks, accessed 24 September 2026, benchmarkit.ai.
KeyBanc Capital Markets and Sapphire Ventures, Private SaaS Company Survey Reveals Pivot to Efficient Growth and Profitability (press release on the 2023 survey), 18 December 2023, sapphireventures.com.
Collaborative Fund, What I Learned Reading 1,000 Investor Reports, 1 March 2023, collabfund.com.
Bessemer Venture Partners, Scaling to $100 Million, 21 September 2021, bvp.com.
Andreessen Horowitz (a16z), 16 More Startup Metrics, 23 September 2015, a16z.com.
Andreessen Horowitz (a16z), 16 Startup Metrics, 21 August 2015, a16z.com.
The Rule of 40% For a Healthy SaaS Company, 3 February 2015, blog post.
For Entrepreneurs, SaaS Metrics 2.0: A Guide to Measuring and Improving What Matters, 16 January 2013, forentrepreneurs.com.
KPMG in India, First Notes: MCA issues amendments to Ind AS (amendment rules notified on 12 August 2026), 21 August 2026, kpmg.com.
Davis Polk, BVCA updates its model documents for early-stage investments, 18 March 2025, davispolk.com.
Morrison Foerster (MoFo ScaleUp), Ask A Mofo: Common Provisions in Venture Capital Term Sheets: Information and Observer Rights, 23 April 2024, scaleup.mofo.com.
Dema, Contribution margin 1, 2, and 3: the key components of e-commerce profitability, 10 April 2024, dema.ai.
Built In, Founder Cheatsheet: Information, Inspection and Observer Rights in a Venture Financing, 14 December 2022, builtin.com.
Rest of World, What was Builder.ai and why did it shut down?, 1 August 2025, restofworld.org.
silicon.co.uk, report on Builder.ai's revised sales figures (citing the Financial Times and Bloomberg), 26 May 2025, silicon.co.uk.
Inc42, report on the Delhi Police Economic Offences Wing FIR in the GoMechanic case (allegations, not findings of any court), 25 October 2023, inc42.com.
TechCrunch, Byju's auditor Deloitte, board members resign, 22 June 2023, techcrunch.com.
Crunchbase News, report on WeWork's run-rate revenue and "community adjusted EBITDA" (citing the Wall Street Journal), 14 June 2018, news.crunchbase.com.
Disclaimer
This article is for educational and general business information only and is not legal, tax, accounting, financial or investment advice. Figures, thresholds and rules are stated as at 24 September 2026, the Last verified date above; they differ by jurisdiction and change over time. The example company and every figure derived from it are hypothetical. Confirm how the rules apply to your company with a qualified adviser before acting.
Comments