Use of Funds: Why a List of Departments Fails Institutional Screening

Institutional investors read a use-of-funds slide in under two minutes. Most founders think it is reviewed for math. Institutional investors read it for judgment.

When a slide lists marketing, hiring, legal, and operations with a percentage next to each, an experienced LP reads something specific: this team has not connected their capital to a decision sequence. That is a screening signal, and it surfaces before formal diligence begins.

In a 4 to 9 month raise timeline, weak signals at the deck stage create avoidable delay. By the time an investor circles back with questions, the relationship is already cooling.

What a weak use-of-funds slide tells an institutional investor:

• The team has not pressure-tested whether the raise amount is sufficient
• There is no evidence of milestone-based thinking or deployment sequencing
• The capital story is disconnected from the financial model, timeline, and data room
• Management may not have defined what success looks like before the next capital event

The fix is a structural rebuild.

Why a List of Departments Fails Institutional Screening

Department labels answer where the money sits. Institutional investors want to know what this capital accomplishes before the next decision point.

A line item called "marketing" does not tell an investor whether that spend drives revenue, builds a tenant pipeline, secures pre-leasing commitments, or simply covers a retainer. A line item called "team" does not tell them whether headcount is pre-revenue overhead or a direct input to project execution. The label creates the appearance of planning without the substance of it.

The deeper problem is sequencing risk. Broad buckets hide whether the sponsor has thought through which uses must come first, which are contingent on earlier milestones, and what happens if one bucket runs over.

When the slide is detached from the financial model, the raise timeline, and the data room, investors draw a reasonable conclusion: the team has not pressure-tested deployment. That conclusion does not require a formal diligence meeting. It happens on slide review. Sponsors who have worked through a structured capital raise audit recognize this as one of the earliest filters applied before a first meeting is ever scheduled.

What Institutional Investors Want Instead

Institutional investors want a capital deployment logic that answers three questions at once: what risk does this capital remove, what milestone does it buy, and is the raise amount actually sufficient to get there?

A credible use-of-funds slide shows three layers for each bucket:

1. Allocation bucket - a specific use category tied to a project phase or business objective, not a department name
2. Milestone objective - a measurable output the capital is designed to achieve, such as entitlement completion, construction financing close, or a signed lease threshold
3. Deployment window - the time frame in which the capital is deployed, expressed in months or project phases, so investors can map it against the model

Key signal: When all three layers are present, the slide stops being a budget summary and starts functioning as a deployment thesis. That is what institutional investors underwrite.

A credible slide also reflects downside discipline. That means showing a reserve position that is sized to a specific contingency, not a round number added to reach 100 percent. It means showing phased deployment where later tranches are conditional on earlier milestone completion. And it means showing that the total raise is sized to reach a financeable or distributable outcome, not just to cover 12 months of burn.

Investors who see this structure read it as evidence that management has already stress-tested the raise. That is a different conversation than the one that starts with "walk me through your use of funds."

A Rebuild Framework for a Use of Funds Slide That Can Survive Screening

Rebuilding the slide is a five-step process. Each step removes a layer of ambiguity that institutional investors use to screen out deals before a first meeting.

Step 1: Write the raise purpose in one sentence. State what this capital must accomplish before the next decision point. Not what it covers. What it accomplishes. Example: "This raise funds the project from land close through entitlement completion and construction financing readiness." That sentence becomes the organizing logic for every line below it.

Step 2: Break uses into milestone-based buckets. Replace department labels with phase-based or objective-based categories. For real estate, that typically means predevelopment costs, entitlement and permitting, hard-cost deposits or early procurement, carry and operating reserves, transaction execution costs, and leasing or marketing tied to a specific occupancy threshold. For growth-stage companies, it means product completion, revenue-generating headcount, customer acquisition tied to a unit-economics target, and a reserve position sized to a named contingency.

Step 3: Assign each bucket a range, a window, and an output. Every line gets three data points: approximate allocation (a range, not a false-precision percentage), a deployment window in months or project phases, and a measurable output that defines completion. This is what converts a budget into a deployment thesis.

Step 4: Cross-check the slide against the model, timeline, and data room. All three must tell the same story. If the model shows a 14-month predevelopment period but the use-of-funds slide allocates predevelopment costs to months 1 through 6, the inconsistency will surface in diligence. Investors treat inconsistencies as evidence of a team that has not stress-tested the plan.

Step 5: Run the slide through the Capital Raise Pre-Flight process before sending the deck. The Capital Raise Pre-Flight is IRC Partners' fixed-fee diagnostic that scores a raise against the same twelve institutional gates a deal must clear before IRC Partners takes it into a strategic partnership. The use-of-funds slide is Gate 7 of 12. A weak slide that conflicts with the financial model, timeline, or data room is a systemic readiness problem, not a deck problem.

Checklist before the slide leaves the deck:

• Raise purpose stated in one sentence
• No department labels; all buckets tied to phases or objectives
• Each bucket has a range, a deployment window, and a measurable output
• Reserve position sized to a named contingency, not a round number
• Slide matches the financial model and the raise timeline
• Total raise is sized to reach a financeable or distributable outcome

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The Real Estate Version: Buckets That Hold Up in Institutional Review

In a real estate institutional raise, investors are screening one specific question: does this capital bridge the project from its current state to a financeable next state? Every line item on the use-of-funds slide either answers that question or creates doubt about it.

A credible slide for a real estate raise distinguishes between hard-cost deployment and the costs that surround it. Institutional LPs want to see what gets de-risked before the next capital ask.

Acceptable use-of-funds buckets for an institutional real estate raise:

• Predevelopment costs: feasibility, design, and engineering through permit-ready drawings
• Entitlement and permitting: municipal approvals, environmental review, and zoning resolution
• Construction financing preparation: third-party reports, appraisal, lender coordination costs
• Hard-cost deposits or early procurement: steel, concrete, or long-lead items tied to a schedule milestone
• Carry and interest reserve: sized to a specific hold period, not a round number
• Transaction execution: legal, closing costs, and title tied to a named transaction milestone
• Leasing or pre-sales reserve: tied to a specific occupancy or pre-sale threshold before the next capital event

Each of these lines tells an investor what phase the project is in, what the capital accomplishes, and what the project looks like when the money is deployed. That is the standard. A list of departments does not meet it.

Where This Fits in Investor Readiness

A weak use-of-funds slide is rarely a standalone problem. It is usually a symptom of a readiness gap that runs through the financial model, the raise timeline, and the data room at the same time. Understanding the full institutional due diligence sequence helps clarify why the slide is reviewed so early and why a gap at Gate 7 creates friction across every stage that follows.

When the slide does not match the model, or the model does not support the timeline, or the data room does not contain the documents that back the deployment logic, the problem runs through the entire system.

The use-of-funds slide is one of 12 categories evaluated in a structured readiness process. When it fails, it rarely fails alone.

If the slide is the first thing an investor questions, it is worth asking what else in the package is misaligned. A structured investor readiness assessment evaluates all 12 categories together, identifies which ones fall below the 85-threshold required for institutional screening, and produces a 20 to 30 page report within 10 business days. That is the right starting point when the issue is systemic rather than cosmetic.

Frequently Asked Questions

What should a use-of-funds slide include for institutional investors?

Each line item on a use-of-funds slide needs three elements: a specific allocation category tied to a project phase or business objective, a measurable milestone the capital is designed to achieve, and a deployment window expressed in months or project phases. A slide that shows only department names or percentage splits without milestone context will not survive institutional screening.

How detailed should a use-of-funds breakdown be?

5 to 8 line items is the right range for most institutional raises. The breakdown should show deployment sequencing without becoming a budget spreadsheet. Each line should be specific enough that an investor can map it to a milestone in the financial model and a phase in the raise timeline.

Is there a standard percentage allocation investors expect to see?

There is no fixed percentage template that applies across institutional raises. A reserve position below 5 percent will raise questions, and predevelopment costs that exceed 30 to 35 percent without a milestone explanation will attract scrutiny. Investors focus on whether the raise amount is sufficient to reach a financeable next state, not on whether any single bucket hits a specific percentage.

What happens when the use-of-funds slide conflicts with the financial model?

A conflict between the use-of-funds slide and the financial model is treated as evidence that the team has not stress-tested the plan. In a formal diligence process, that inconsistency becomes a line item in the diligence report. In pre-diligence screening, it is often enough to end the conversation before a first meeting is ever scheduled.

How does the use-of-funds slide relate to the 12-category screening process?

The use-of-funds slide is Gate 7 of 12 in the institutional readiness review, and it rarely fails in isolation. When it fails, at least two or three other categories are typically also below the 85 threshold required for institutional screening. Fixing the slide without addressing the connected categories does not resolve the underlying readiness gap.

Should the use-of-funds slide show a contingency or reserve line?

Yes, and it should appear as a named line item sized to a specific contingency. A reserve that looks like a round number added to reach 100 percent signals the opposite of downside discipline. Institutional investors read a clearly reasoned reserve position as evidence that management has stress-tested the deployment plan.

How far into the raise process does a weak use-of-funds slide create problems?

A weak use-of-funds slide creates problems at the first stage of the raise, during deck review before any formal meeting is scheduled. In a 4 to 9 month raise timeline, a slide that generates skepticism at screening can add 4 to 8 weeks of delay before the conversation resets. Rebuilding it before outreach begins is significantly less costly than explaining it after an investor has already formed a negative impression.

Continue reading this series:

• The Critical-Gate Override: Why One Failed Category Zeroes Out a Strong Deal
• What Is the Institutional Readiness Score? The 0 to 100 Scale and the 85 Threshold Explained
• What Is an Investor Readiness Assessment and What Should It Cost?