How to Build Your First Use of Proceeds Model for SaaS Startups

Foundational Understanding of a Use of Proceeds Model

A Use of Proceeds model is a strategic financial plan detailing how a startup will deploy newly raised capital over a specific period. Its core purpose is to create a credible roadmap showing how you will achieve the key milestones required to secure your next round of funding. It goes beyond a simple budget by linking every dollar of spending directly to a strategic outcome.

For SaaS companies, this means outlining the spending on headcount, product development, and go-to-market activities needed to hit specific targets, like a certain level of Annual Recurring Revenue (ARR). The target runway for a seed round is typically 18 to 24 months, so your model should reflect a plan to operate effectively within that timeframe. This window provides enough time to demonstrate meaningful traction without creating excessive dilution.

Ultimately, this model is a tool for strategic alignment, forcing you to make deliberate choices about resource allocation. The goal is not to create a perfect prediction, but a defensible plan that guides your decisions and communicates your strategy clearly to stakeholders. It demonstrates to investors that you have a thoughtful approach to SaaS capital deployment.

Step 1: Start with Your Milestones, Not Your Spreadsheet

The most common mistake founders make is opening a blank spreadsheet and starting with expenses. A powerful Use of Proceeds model starts with the destination. Before you model a single salary or marketing dollar, you must answer a critical question: What do we need to achieve in the next 18 to 24 months to be in a strong position to raise our Series A?

Define Your Series A North Star

The answer to that question defines your milestones. For many, the goalpost is clear, as "$1M ARR is a common Series A traction target for SaaS companies." Your entire model should work backward from this, or an equivalent traction-based, goal. This single metric becomes the anchor for your entire financial plan, providing clarity and focus.

Break this headline metric down into its component parts. This process transforms the exercise from a simple budgeting task into a strategic planning session. Consider the key objectives across different areas of the business:

• Revenue Milestones: To reach $1M ARR, how many new customers do you need each month? What average contract value (ACV) does that imply? What does your monthly recurring revenue (MRR) growth need to look like?
• Product Milestones: What key features must be shipped to win and retain those customers? Are there specific integrations or enterprise-ready features required to unlock a higher ACV?
• Go-to-Market Milestones: What marketing and sales engine is required to generate the necessary pipeline? Does this mean achieving a certain number of qualified leads per month or building a repeatable sales process?

By defining the finish line first, you create a clear set of non-negotiable objectives that your budget must support. This reframes the entire exercise, ensuring your financial plan is a direct reflection of your business strategy and provides a clear narrative for investors.

Step 2: Build Your Team Plan, Your Biggest Cost Driver

With your milestones defined, the next step is to build the team required to achieve them. This is the most critical part of your early stage SaaS finance model because, as research shows, "Headcount typically accounts for 70-80% of a startup's burn." Your hiring plan is your budget plan. Start by mapping out the roles needed to hit your product and revenue milestones.

Create a Staggered Hiring Roadmap

A common pitfall is planning to hire everyone on day one. This front-loads your expenses and accelerates your burn rate unnecessarily. A scenario we repeatedly see is the power of a staggered hiring plan, which aligns your spending with your progress. For example, your roadmap might look like this:

• Months 1-3: Hire two senior engineers to accelerate core product development.
• Months 4-6: Hire a product marketer to refine positioning and a content lead to build your top-of-funnel engine.
• Months 7-9: Hire your first two sales development reps (SDRs) once the product is more mature and initial marketing efforts are generating leads.

This capital-efficient approach aligns your burn rate with your traction and extends your runway, giving you more time to hit your goals. It also allows you to make more informed hiring decisions as you learn more about your market and customer needs.

Calculate Fully-Loaded Costs Accurately

Next, you must calculate the fully-loaded cost of each hire, not just their base salary. This is a crucial detail investors will look for. In practice, "A 25-30% buffer should be added to base salaries to calculate fully-loaded costs (taxes, benefits, perks)." This buffer accounts for employer-side payroll taxes (like Social Security and Medicare in the US or National Insurance in the UK), health insurance contributions, pension or 401(k) matches, and other benefits.

A software engineer with a $120,000 salary will actually cost your business between $150,000 and $156,000 per year. In your spreadsheet, create columns for base salary, the buffer percentage, the fully-loaded annual cost, and the fully-loaded monthly cost. Then, add a timeline (e.g., Month 1 to Month 24) and plug in the monthly cost for each hire starting from their anticipated start date. This detailed view gives you a much more accurate forecast and is fundamental to effective SaaS runway planning.

Step 3: Allocate Capital to Product, Sales, and Marketing

Once your headcount plan is set, you will have a clearer picture of your remaining capital. Now, you must decide how to split these funds between go-to-market (GTM) initiatives and further product development. This is a major challenge when you have limited ROI data, which is why your GTM strategy must dictate your SaaS capital deployment.

Let Your GTM Motion Guide Your Budget

The allocation for a Product-Led Growth (PLG) company looks fundamentally different from that of a Sales-Led one. Use industry benchmarks as sanity checks rather than rigid rules to guide your initial assumptions. For example, benchmarks suggest that "Product-Led (PLG) or Tech-Heavy startups at the seed stage typically spend 60-70% on Product & Engineering." In contrast, "Sales-Led or GTM-Heavy startups at the seed stage typically spend 40-50% on Product & Engineering and a similar amount on Sales & Marketing."

Another data point from OpenView reinforces this, showing that "Early-stage companies often spend 40-50% on R&D and 20-30% on S&M." To illustrate, consider two startups that each raised $2 million:

• Hypothetical PLG Startup: "FormFlow" is building a self-serve forms tool. Their strategy is to win with a superior product experience. They allocate 65% of their non-headcount budget to Product & Engineering, funding specific feature development. Their GTM spend is focused on content marketing, SEO tools, and community building to drive organic sign-ups. Their model has minimal spend on sales commissions or expensive enterprise marketing tools.
• Hypothetical Sales-Led Startup: "SecureLeap" sells a compliance platform to mid-market companies. Their strategy requires direct outreach. They allocate 45% to Product & Engineering (to build necessary enterprise features) and 40% to Sales & Marketing. This budget supports two account executives and an SDR, along with spending on a CRM like Salesforce, conference attendance, and performance marketing aimed at generating demos.

Don't Forget General & Administrative (G&A) Costs

While product and GTM are the primary drivers, remember to budget for G&A expenses. These are the operational costs of running the business, such as legal fees, accounting services, insurance, and office rent if applicable. It also includes essential software subscriptions like Google Workspace, Slack, and your accounting system, whether that's QuickBooks or Xero. Typically, G&A accounts for 10-15% of the budget at the seed stage.

Step 4: Your Assumptions Will Be Wrong (And That's Okay)

One of the biggest anxieties for founders is presenting a financial model knowing that the assumptions are essentially educated guesses. Customer acquisition costs, sales cycle lengths, and hiring timelines will all change. The reality for most seed-stage startups is pragmatic: investors know your plan will evolve. They are not investing in the perfection of your spreadsheet; they are investing in your understanding of the business drivers and your ability to adapt.

Embrace Uncertainty with Scenario Planning

The purpose of the model is to create a defensible plan, not an infallible prediction. To address this uncertainty, build your model for flexibility. The best practice is to include simple scenario planning. Create three versions of your forecast:

• Baseline Case: Your most realistic plan, based on your current assumptions.
• Upside Case: An optimistic scenario where you hit targets faster, hire more efficiently, or achieve better unit economics.
• Conservative Case: A downside scenario where sales cycles are longer, churn is higher, or hiring is delayed.

This demonstrates to investors that you have considered potential risks and have a plan for managing cash if circumstances change. It also gives you an internal playbook for making tough decisions. If you are tracking behind the baseline model for two consecutive months, you know it is time to adjust spending or re-evaluate your strategy.

Make Your Model a Living Document

Your Use of Proceeds model should be a living document, not a static fundraising artifact. The real value comes from using it to actively manage the business. Commit to a regular review cadence. We recommend a monthly internal check-in with your leadership team and a formal update for your board quarterly. Compare your planned spend and revenue against your actuals from your accounting system, like Xero or QuickBooks.

This process of variance analysis helps you understand what is working and what is not, allowing you to reallocate capital to more effective channels. This turns the model from a theoretical exercise into a dynamic tool for SaaS financial planning and managing your runway proactively.

Practical Takeaways for Your SaaS Startup Budgeting

Building your first Use of Proceeds model is a foundational exercise in strategic finance. It forces clarity on how you will transform capital into a Series A-ready company. As you embark on this process, keep four key principles at the center of your SaaS startup budgeting.

First, always work backward from your next major milestone, which for many is achieving $1M ARR. Let the destination define the plan. Second, build your hiring plan first, as headcount is your largest expense. Use a staggered approach and always calculate fully-loaded salary costs to create an accurate burn forecast. Third, let your go-to-market strategy dictate the allocation between product, sales, and marketing. There is no single right answer, only the answer that is right for your business model. Finally, embrace uncertainty by building a flexible model with multiple scenarios. Treat it as a living document to be updated quarterly.

Mastering how to allocate seed funding for saas startup success is less about perfect forecasting and more about creating a clear, adaptable, and milestone-driven plan to guide your growth.

Frequently Asked Questions

Q: How detailed should my Use of Proceeds model be for a seed round?
A: For a seed round, your model should be detailed enough to be credible but simple enough to be adaptable. Focus on a monthly forecast for 18-24 months. The most important details are your hiring plan with fully-loaded costs, major marketing and sales programs, and key revenue assumptions like customer growth and ACV.

Q: What is the biggest mistake founders make when presenting this model to investors?
A: The most common mistake is presenting the model as a perfect prediction. Instead, frame it as a strategic plan based on a set of defensible assumptions. Be prepared to discuss the "why" behind your numbers and show that you have considered risks by including conservative and upside scenarios in your SaaS financial planning.

Q: Should I include founder salaries in the Use of Proceeds model?
A: Yes, absolutely. Founder salaries are a real operating expense and should be included in your headcount budget. Paying yourselves a reasonable, below-market salary demonstrates financial discipline to investors and ensures you can focus on the business without personal financial stress. It is a standard part of SaaS startup budgeting.

Q: How does this model change for a pre-seed vs. a seed round?
A: A pre-seed model is typically simpler and more focused on product development. The runway may be shorter (12-18 months), and the primary goal is reaching product-market fit. A seed round model, as described here, has a stronger emphasis on building the initial GTM engine and achieving predictable revenue growth like ARR milestones.