The Bakery Model in Startup Fundraising

Or Why EBITDA should be the Northstar Metric for Startups (even if it’s negative)

Early 2020, Uber CEO Dara Khosrowshahi declared “The era of growth at all costs is over,” signifying a mentality shift towards profitability and an end of the company’s notorious habit of throwing money at problems.

Funny enough (or perhaps as expected), Uber hasn’t stuck by its new mantra: It posted a Q3 2020 net loss of $1.1B on $14.7B in gross receipts. That brings us to the topic of this article: in all likelihood, your company or your investments are not Uber. Uber and other mega-corps can sustain massive losses because of their cash reserves and access to debt capital. Most startups do not have such access and cannot sustain such losses. To wit: CB Insights puts the chances of a VC-backed company becoming a “Unicorn” at 1%, and if we dig into what “VC-backed” really means, those chances become even slimmer for angel-, seed-, and even some Series-A-stage companies.

All if this is to say, while your vision, drive, and heart can be laser-focused on IPO, you must run your company with an eye on the bottom line. I’ve never worked with a startup and not pushed some type of focus on the bottom line. Likewise, I’ve never consulted on a capital raise when I wasn’t certain the company had some sort of realistic financial plan to accompany their strategy.

First: The Bakery Model

Move past the sexiness of the venture space and you’d be surprised how many operators and investors forget the simple equation: Revenue - Expenses = Profit (π).

This brings us to The Bakery Model. How do you start a bakery, in the most basic sense? One day you wake up with $50 in your pocket. You use that to buy ingredients, cost the ingredients for 1 loaf of bread ($1) and sell that loaf for a markup ($2). Boom: you’re a business! The profit you’ve made from the markup on your bread can now be reinvested into your business to fund growth.

How does The Bakery Model relate to high-growth startups?

A favorite sourcing question of mine is: What’s your Bakery Model? This means: if you had no access to outside capital, how would you build the company brick-by-brick with minimal funding?

A startup’s Bakery Model should be its foundation. Other strategies, products, employees, costs, etc, should be layered onto the bakery model only after they create a clear path to ROI.

Bottom Line = Cash Flow

So let’s bring this back to our discussion of EBITDA as the ultimate startup Northstar metric.

Again, I’m bullish on VCs moving away “growth at all costs” to “strategic growth for ROI.” In 2021, expect investors to take a harsher view of long-term, high-volume cash flow deficits and favor well-crafted growth strategies combined with iterative operating models that add bulk to the bottom line.

TL;DR for startups: you’ll need to be able to use your sales to fund your expenses (i.e. breakeven) sooner than later, because investors are less keen to provide the cash for you to figure it out.


EBITDA is really a proxy for net income and therefore cash flow, and I prefer to use it as a Northstar because it holds an important context in venture capital. EBITDA is the gold-standard valuation metric, which is why it’s used across transactions: from startup funding to private equity buyouts and M&As. Venture-backed companies are generally run with the expectation of investment return via exit. So inherently, EBITDA is a well-suited bottom-line metric to gauge startup company performance.

Leah Madden is the founder and managing director of Greenprint Growth Partners, offering growth strategy and financial consulting services to startups and venture capital portfolios.