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A Quick Update

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Revenue, Costs and Profits

The Founder Institute

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Cost & Revenues

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Financial Mistakes to kill your company

Companies with an effective marketing and salesprocess often win out over companies with superiorproducts and technology.

Mistake 1: Forgettingthat cash in versus cashout is THE mostImportant financialmeasure.Mistake 2: Wrong Pricing.

Mistake 3: Making majorexpense commitmentsbefore revenuesmaterialize or funding issecured.

Mistake 4: Taking moneyfrom investors or addingpartners that haveinconsistent objectives.

Mistake 5: Not investingenough in Marketing andSales.

Managing cash flow is THE most important financialmeasure in any growing (or stagnating) business.

If you sell a product for too little, your company maynot be able to cover all its costs or you might beleaving potential profits “on the table”. If the price is

too high, there may not be any sales.Many companies believe customers will beat a path totheir door as soon as their product or servicebecomes available. While you must have a plan todeliver if this does happen, keep financialcommitments to that scenario to a minimum.

(adapted from Larry Willeman, Willeman Strategy Partners)

As a business owner, you need to make sure youknow what your prospective investors‘objectives andcriteria for success are, before you take their money.

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How do you build a financial model?

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How do you know your model is right?

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You won’t before you make real cash!

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Example 1

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Example 2

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Example 3

2

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200

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200

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200

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200

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201

0

201

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201

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in

mEUR

Revenue

Future Growth

€3 Mio. Investmentrequired forexpansion(internationalisationand productdevelopment)100% annual growthpossibleOperating businessremains cash flowpositive during

growth phase

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What do Angels and VCs expect fromyour model?

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ot necessar y w at youexpect:

• Hockey stick, but no revenues >1mio in Y1/Y2 post financing• Never, ever say: “This is a very conservative plan”• Loads of revenues, but not too many revenue streams• Clear biz model, but if you do B2C, why don’t you go B2B2C?

(Stop listening here)• Potential $1bio.+ company, but very low to moderate founder

salaries• Pay peanuts, but don’t hire monkeys• Some serious advice: assume 0 revs – what’s your lifeline?

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Good Night&

Good Luck

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Backup

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5 key metrics

ash Flow: Net cash flow = cash inflows - cash outflows.over Growth: Often based on assumptions. Calculate with industryth averages and your share of the market.s Margin: Usually bench-marked against industry averages to seeefficiently a business is structured.

Growth: Sales, General & Administrative (SG&A) expensesde all salaries, indirect production, marketing, and general corporatenses.ating Margins: Allows you to get an idea of the profitability of the