ATWU Capital

Minimal Requirements for a Startup Business Model

We, as investors, regularly get pitched businesses, but quite a lot of (early-stage, first-time) founders tend to forget important pieces in their business plan.

First of all: We investors do NOT really care about cool new technology. We do not invest based on a new breakthrough if there is no viable way for this technology to be commercialized.

That is the big difference between private-market businesses and public-funded research: Public-funded research lays the bricks for new technology that private market businesses then combine with a working business model.

Without a solid business model, you don't have a viable startup idea. And let's be clear: The simpler your business model is, the better. It is hard enough to master one acquisition and one revenue stream; if you rely on five different ones to have a viable business, that is not good.

Components of a Business Model

A business model (and hence your startup pitch) has a few really important parts:

  1. Customer Acquisition Strategy
  2. Revenue Streams
  3. Customer Retention Model & Growth Mechanics
  4. Unit Economics
  5. Risk Management
  6. Competitive Advantage

In this guide we give you a few points to focus on, for each of this parts.

Customer Acquisition Strategy

We need to see a clear, repeatable path to acquiring customers profitably.

Why we care: A poorly defined acquisition strategy signals unsustainable growth. By showcasing CAC payback periods (e.g., recovering CAC in 3 months) and scalable channels, you prove the business can grow efficiently.

Key Terms:

You must articulate:

Your customer acquisition strategy must demonstrate a deep understanding of both your target market and the most efficient ways to reach them. We want to see that you've developed and tested multiple acquisition channels, with clear data showing the effectiveness of each. This isn't just about knowing your cost per acquisition; it's about understanding the complete customer journey and having proven methods to guide prospects through your sales funnel.

When presenting your acquisition strategy, focus on demonstrating scalability. Show us how your current methods can expand without proportionally increasing costs. For instance, if you're utilizing digital marketing, explain how your customer acquisition costs decrease as you optimize your campaigns and benefit from economies of scale. Include specific examples of successful campaigns and their metrics, showing not just what worked, but why it worked and how it can be replicated.

Good Example:

"Our Instagram ads deliver customers at $50 CAC, versus $150 through Google Ads. We've grown from 100 to 1,000 customers in 3 months through this channel, with conversion rates improving monthly."

Bad Example:

"We'll go viral on social media and get millions of users."

Questions you must be able to answer:

  1. What's your current customer acquisition cost (CAC), and how do you expect it to evolve?
  2. Which marketing channels have proven most effective so far?
  3. How scalable are your current acquisition methods?
  4. What percentage of customers come from organic vs. paid channels?
  5. How long is your sales cycle?
  6. What's your conversion rate at each stage of the funnel?

Revenue Streams and Monetization

Revenue is the lifeblood of your business, and we scrutinize its structure.

Why we care: Diverse, predictable revenue streams reduce dependency on a single source and signal market validation. We want to see that you’ve tested pricing strategies and can scale revenue without margin erosion.

Key Terms Explained:

You must:

The strength of your revenue model is fundamental to our confidence. Your presentation should clearly articulate how money flows into your business, with particular attention to recurring revenue streams. Break down your revenue sources in detail, explaining the rationale behind your pricing strategy and how it positions you in the market.

Beyond just stating your revenue streams, demonstrate their sustainability and growth potential. Show how your revenue model becomes more efficient as you scale, and provide clear unit economics that support your projections. We need to see that you've thought through various revenue scenarios and have strategies to optimize each stream.

Good Example:

"80% of revenue comes from $50/month subscriptions, with 15% from premium features and 5% from consulting. Our gross margin is 75%."

Bad Example:

"We'll figure out monetization once we have users."

Questions you must be able to answer:

  1. What's your current revenue mix between different products/services?
  2. How predictable is your revenue?
  3. What's your pricing strategy and how did you determine it?
  4. How does your pricing compare to competitors?
  5. How do you plan to increase revenue per customer?
  6. How recession-proof is your revenue model?

Customer Retention and Growth Mechanics

Acquiring customers is futile if you can’t retain them.

Why we care: High retention (e.g., <5% monthly churn) and organic growth loops indicate product-market fit.

Key Terms Explained:

You must address:

Customer retention is often more critical than acquisition, as it directly impacts your long-term profitability. Present detailed cohort analyses showing how your retention rates improve over time. Explain your customer success programs and how they contribute to increased lifetime value. Most importantly, demonstrate how your product or service naturally encourages continued use and expansion within your customer base.

Your growth mechanics should show clear flywheel effects - how each satisfied customer leads to more customers through referrals, network effects, or other organic growth channels. This demonstrates that your growth isn't solely dependent on continued marketing spend.

Good Example:

"70% of customers remain active after 6 months. Each customer refers 1.5 new users, creating organic growth."

Bad Example:

"Our product is so good, customers won't want to leave."

Questions you must be able to answer:

  1. What's your current churn rate?
  2. What's your customer lifetime value (LTV)?
  3. What's your customer retention strategy?
  4. How do you identify at-risk customers?
  5. What's your net revenue retention rate?
  6. How do you drive expansion revenue?
  7. What network effects exist in your business?

Unit Economics: The Foundation of Your Business

Unit economics reveal whether your business can survive at scale.

Why we care: Poor unit economics sink even “high-growth” startups. By proving your margins improve at scale, you assure us the model is fundamentally sound.

Key Terms Explained:

You must quantify:

Unit economics deserve particular attention as they're often the make-or-break factor for us as investors. Present a clear breakdown of your cost structure, revenue per customer, and the timeline to profitability for each customer relationship. Show how your unit economics improve with scale, and be prepared to defend your assumptions with market data and historical performance.

A critical metric to highlight is your payback period - how quickly you recover your customer acquisition costs. The gold standard is three months or less, but if yours is longer, be prepared to explain why and how you plan to improve it.

Good Example:

"Our LTV:CAC ratio is 4:1 ($1,200 LTV/$300 CAC). We recover acquisition costs in 2.5 months, with 85% gross margins."

Bad Example:

"We'll make it up in volume."

Questions you must be able to answer:

  1. What's your gross margin per unit/customer?
  2. How does your LTV/CAC ratio compare to industry standards?
  3. What's your payback period?
  4. How do unit economics change with scale?
  5. How do your unit economics compare to competitors?
  6. What drives improvements in your unit economics?
  7. At what scale do you achieve profitability?

Risk Management and Mitigation

We reward founders who confront risks head-on.

Why we care: Transparency about risks builds trust. We want founders who’ve stress-tested their model and have mitigation strategies ready.

You must address:

Sophisticated investors appreciate when founders demonstrate awareness of potential risks and have thoughtful mitigation strategies. Present a comprehensive risk analysis covering market risks, operational challenges, competitive threats, and regulatory concerns. For each significant risk, outline specific steps you're taking to minimize its impact.

This section should show that you're not just optimistic about your business's potential but are also pragmatic about the challenges ahead. Include contingency plans for various scenarios, showing us that you're prepared for both opportunities and obstacles.

Good Example:

"We've identified three key risks: supply chain disruption, regulatory changes, and competition. Here's how we're addressing each..."

Bad Example:

"We don't see any significant risks to our business."

Questions you must be able to answer:

  1. What are your biggest operational risks?
  2. How dependent are you on key suppliers/partners?
  3. What regulatory risks affect your business?
  4. How do you protect intellectual property?

Competitive Advantage and Market Positioning

We seek businesses that can outlast competitors.

Why we care: A lack of differentiation is a red flag. By articulating sustainable moats—like HubSpot’s “easy-to-adopt CRM”—you prove the business can thrive amid competition.

Key Terms Explained:

You must highlight:

Your competitive advantage must be both clear and sustainable. Explain what makes your solution unique and, more importantly, why it's difficult for competitors to replicate. This could involve proprietary technology, network effects, exclusive partnerships, or other defensive moats.

Present a detailed competitive landscape analysis, showing where you fit in the market and why your positioning is advantageous. Use concrete examples to demonstrate why customers choose your solution over alternatives, backing these claims with customer testimonials and market data.

Good Example:

"Our proprietary AI reduces customer service costs by 30%. High switching costs and network effects create lasting advantages."

Bad Example:

"We have no real competitors."

Questions you must be able to answer:

  1. Who are your main competitors and how do you differentiate?
  2. What barriers to entry protect your business?
  3. How sustainable is your competitive advantage?
  4. What prevents larger companies/competitors from simply copying your solution?
  5. How do you stay ahead of market changes?
  6. What proprietary technology/IP do you have?
  7. How hard would it be for customers to switch to competitors?
  8. What's your moat strategy as you scale?

After all, we as investors want to understand a few things, before we hand you our hard-earned money:

  1. Will this generate strong returns?
  2. Is the market large enough?
  3. Can you acquire customers efficiently?
  4. Will customers pay enough?
  5. Can you scale effectively?
  6. Are you data-driven?
  7. Why are you better than competitors?
  8. Are you the right team?
  9. Do you understand your weaknesses?
  10. Are you genuinely passionate about this problem?

And as last point, here are a few red Flags that we watch out For:

Hope this helps you improve your business plan and get your startup to a success.