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UCSD ENTREPRENEUR UCSD ENTREPRENEUR CHALLENGE CHALLENGE
Business Plan FinancialsBusiness Plan FinancialsA survey courseA survey course
David W. KramerDavid W. KramerOutsource CFO ServicesOutsource CFO Services
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David W. Kramer Outsource CFO 3
Business Plan FinancialsBusiness Plan Financials
Process, proofProcess, proof
MindsetMindset
StructureStructure
PresentationPresentation
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ProcessProcess
Strategy is words – start here
Financials are dollarized words
They prove it’s fundable
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ProcessProcess
Top Down: Good idea or Not?
Product/Service = Competitive Painkiller
Sales ResearchMarket size, growthCompetitionPricing ($), erosion
Cost of Goods Sold
Gross margin
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ProcessProcess
Bottom Up – Make Money?
Operating Expenses:
Getting customers = marketing, sales Ads: online click-thru rates, etc.TradeshowsPersonal selling
Keeping them = Product development
Running the business = G&A
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ProcessProcess
The bottom lines:
Operating Profit
Income Taxes/Credits (40%)
Net Income
Then: How fast can you break even?
Project 5 years, monthly. Scale up.
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ProcessProcess
Can you sustain it? Cash flow:
Net Income plus:
-Capital expenditures+Depreciation+Prepaid Sales-Delay in collecting sales
Can you shorten your cash cycle?
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ProcessProcess
Can you interest the investor?
Return: 5-10x investment in 4-7 years
Exit: probably acquisition
Speed to market/earnings on cash invested
Aggressive numbers, tempered by realism
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ProofProof
Typical High Tech Investment Stages, 1-3 yrs.
Source Stage Pre-$ Val Funding
Family Concept $0.5-1M $50-250K
Angel 1 Prototype, Patent $1-3M $50-500K
Angel 2 Beta site/launch $2-3M $.05-1.5M
Venture A Volume mfg $6-10M $3-5M+
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ProofProof
Typical Biotech Investment Stages, 1-3 yrs.
Source Stage Pre-$ Val Funding
Grants Target identified or lead identified
Negl. $100-500K
Private Equity
Target Validated orPrelim animal efficacy
$1.5M $250k-$1M
Venture A Animal efficacy/safetyFor IND, studies for IND
$5-10M $5-30M
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ProofProof
Investor return = % ownership x exit valuation
Valuation = multiple of sales/earnings or stage level
Multiples: Industry-specific, need research
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MindsetMindset
Fire in the belly + frugality
It’s not about the money – for you
Funding dilutes your ownership
Ask for as little as possible, stage it
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StructureStructure
Workbook:
Summary tabs at left, details at right
1. PPT slides on tabs, linked to detail2. Input variables on tab(s), linked to detail3. Income Statement linked to:
Revenue and COGS detail tabOperating Expense detail tab
sub tabs: Mktg, Devel, G&A, Staffing
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StructureStructure
Cash Flow may be added below I/S if:
Sales collections prompt
Sale earned upfront, not over time
Capital expenditures minimal
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Structure Structure Backup of I/S + Cash FlowBackup of I/S + Cash Flow
% % % %
2002 2003 of rev 2004 of rev 2005 of rev 2006 of rev
REVENUE - 1,000 9,814 45,538 91,564 COGS - 250 2,889 9,108 13,735 Gross Margin - 750 75% 6,925 71% 36,431 80% 77,830 85%
RD&E 2,012 5,091 509% 9,762 99% 6,831 15% 10,988 12%
SG&A 2,528 5,368 537% 8,706 89% 9,108 20% 16,482 18%
Other (Income) or ExpensePretax (4,540) (9,710) (11,543) 20,492 50,360 Tax - - - - 15,084 NET INCOME (4,540) (9,710) (11,543) 20,492 35,276
Cash Flow Summary, sources (uses):Net Income (loss) (4,540) (9,710) (11,543) 20,492 35,276 Depreciation 183 826 1,617 5,250 7,500 Working Capital & Other 175 (1,552) 155% 4,438 -45% (13,661) 30% (22,891) 25%
Capex (373) (2,479) 248% (4,852) 49% (7,000) 15% (10,000) 11%
Cash Burn before Financing (4,556) (12,914) (10,340) 5,081 9,885 Equity Financing 14,000 Equipment Lease Financing (85) 1,322 2,587 5,600 8,000 Cash Burn 9,359 (11,592) (7,753) 10,681 17,885
Headcount 27 69 111 156 188
Revenue & Funding Forecast(US$ in thousands)
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Structure Structure Additional elementsAdditional elements
Cash Flow, if separate from I/S
Balance Sheet, if needed
Detail tabs, above, spaced to right
Capital expenditure detail
Need solid basis for summary numbers
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Presentation:Presentation: Exec. Summary/PPTExec. Summary/PPT
$M.1, if possible Yr 1 Yr 2 Yr 3 Yr 4 Yr 5
Sales
Gross Margin
Net Income
Funding Needed
Cap. Expend., if any
Cash Balance
Technology Phase
Summary financials in one box/page:
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Revenue detail in one box/page
Streams, $M.1, if possibleInput drivers: clicks, sales calls, etc.
Graphs, if helpful to show growth and how funding will be used
Presentation:Presentation: Exec. Summary/PPExec. Summary/PP
For all slides: Few lines, big type
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You tell the story, slides back it up
Be in front of the audience, to side of screen
Presentation:Presentation: The PitchThe Pitch
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Q & AQ & A