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Tiecon 2010 Money, Money, Money How Much Do I Need? How Long Will It Last? How To Be Convincing. Deborah Kranz. 35 years of Financial Experience Fortune 100 Corps, VC’s & startups Motorola, Syva, Saga, 3Com, EY, KPMG, Interwest & Mayfield Fund - PowerPoint PPT Presentation
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Tiecon 2010
Money, Money, MoneyHow Much Do I Need?How Long Will It Last?How To Be Convincing
Deborah Kranz 35 years of Financial Experience Fortune 100 Corps, VC’s & startups Motorola, Syva, Saga, 3Com, EY, KPMG, Interwest
& Mayfield Fund Clients- Admob, ArcSight, Aruba Networks, Palo
Alto Networks, Xros, Kace, Aster Data, Clearwell, Mimosa, Rhapsody, Lookout, Kior, Calera
Significant Experience with Financial Plans
Starting Your Company
Where to Begin
Why You Need A Model
4
Determine amounts and timing of cash needed to reach milestones and cash flow breakeven
Determine the sources and uses of cash from startup to breakeven
To help investors understand the ROI & Exit
Compelling Idea
Initial $ Needed
What Milestones
Break Even Point
Market / % Share
Profitability/Exit
Research -Study
Markets & Competitors
FinancialStatements
Understand Financial
Assumptions & Why They
Matter
DevelopCompany Financial Model & Validate
The Plan Process
Developing A Financial Model
6
Knowledge PrerequisitesSources of Comparative Information Presentation Format Development StepsUsing the ModelFrequent Problems
Knowledge Prerequisites
7
Understand Your Industry
What Problem Am I Solving?
What Products & Services Am I Providing
Understand & Analyze Your Customers & Markets
Understand & Analyze Competitors
Knowledge of Products & Services
8
Articulate problem you are solving & size of problemWhat is the value proposition I can offer?Understand & determine technology road map and
specify key milestone datesUnderstand & determine pricing for productsWhat are my competitive advantages?Are there barriers to entry?What are milestone dates for revenue
Knowledge of Markets & Customers
9
What are the markets and how large?
Who are the customers & what is their geographic distribution?
What is my potential market share?
How long is the sales cycle?
What are my sales channels?
Who are the competitors?
Analysis of Competitors
10
Research & understand your competitors
Public Information
Bankers, attorneys, advisors
How do you differentiate yourself from competitors
Sources of Comparative Data
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Market Studies– Industry report (Hoovers,1st Research)– Investment bankers (Goldman, Morgan Stanley)–Big 4 CPA industry reports–Google
More Sources of Comparative Data
12
EDGAR System S-1,10K (financial data, business)–Accessible through Yahoo Finance–Google “Company Name S-1”
Financial Consultants (Kranz & Assoc)–Comparative Start Ups
SalesforceS-1 Information from Edgar
13
Prospectus Summary 1 Risk Factors 5 Special Note Regarding Forward-Looking Statements 19 Use of Proceeds 20 Dividend Policy 20 Capitalization 21 Dilution 22 Selected Consolidated Financial Data 23 Management’s Discussion and Analysis of Financial Condition and Results of Operations 25 Business 41
Page
Management 55 Certain Relationships and Related Party Transactions 69 Principal Stockholders 72 Description of Capital Stock 74 Shares Eligible for Future Sale 78 Underwriters 80 Legal Matters 83 Experts 83 Change in Independent Accountants 83 Where You Can Find Additional Information 83 Index to Consolidated Financial Statements
Salesforce S-1 Information from Edgar
14
Presentation Format
15
Key Financial Statements– Income Statement– Cash Flow
–Timing differences–Equipment, Inventory
Other Important Data– Headcount– Cash Burn– Cash– Capital Expenditures if significant– Inventory, if applicable
Format of Income Statement
16
Format of Cash Flow
17
How To Use The Model
18
Go to www.kranzassoc.com
Click on Resource Tab Useful Articles
Tiecon Model Available May 20, 2010
Input Cells are Blue
Definitions
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Cost of Sales – Costs directly attributable to sales
Gross Margin – Revenue minus Cost of Sales
Operating Expenses (OpX) – Company Expenses except for Cost of Sales
Capital Expenditures (CapX) – Cost of Equipment
Cash Burn – Cash going out of company
Steps in Developing Plan
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Forecasting bookings and revenue
Forecasting cost of goods sold-COGS
Forecasting operating expenses-OPX
Forecasting capital expenditures-CAPX
Forecasting other uses of cash
Forecasting sources of cash
Bookings & Revenue Assumptions
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Number of units sold
Average selling price per unit
Timing of orders vs. delivery
Bookings versus Revenue
Timing of customer payments
COGS Assumptions
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Costs Related to Revenue Generation
Manufacturing or Operations Dept Costs
Materials or Hosting & Bandwidth
QA & Testing
Purchasing
Department Assumptions - OpX
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Research & Development
Sales & Marketing
General & Administrative
Research & Development Assumptions
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Costs to achieve technical milestones
Staffing
Recruiting
Consulting & Outside Services
Development Costs
Sales & Marketing
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Expenses required for sales forecast
Staffing
Recruiting
Travel
Consulting & Outside Services
Advertising & Promotion
General & Administrative
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Staffing–CEO, Finance/Accounting, HR, IT
RecruitingConsulting & Outside Services–Legal (General & IP)–Audit and Tax
Facilities (rent, utilities, communications)
Supplies, other
Assumptions January February MarchEmployee Staffing (#)Operations 0 0 0Research & Development, Eng 2 2 3Sales & Marketing 0 0 0General & Admin 1 1 1Fringe Benefit % of Salary 20% 20% 20%Bonus % of Salary 0 0 0
Avg Employee Salary ($000)OperationsResearch & Development, Eng $15.3 $15.0 $13.3Sales & MarketingGeneral & Admin $12.5 $12.5 $12.5
Recruiting Cost per new Emp ($000)Operations $8.0 $8.0 $8.0Research & Development, Eng $8.0 $8.0 $8.0Sales & Marketing $8.0 $8.0 $8.0General & Admin $8.0 $8.0 $8.0
Travel Cost per Emp FTE ($000)Operations $0.2 $0.2 $0.2Research & Development, Eng $0.3 $0.3 $0.3Sales & Marketing $1.0 $1.0 $1.0General & Admin $0.5 $0.5 $0.5
Sales Commissions as % or Revenue 10% 10% 10%
Staffing Assumptions$ in 000’s
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January February MarchHeadcount (Year End) 3 3 3
Income Projection ($000)Bookings $ - $ - $ -Revenue $ - $ - $ -
OperationsSalary and related $ - $ - $ -Recruiting $ - $ - $ -
Travel $ - $ - $ -Consulting/outside services $ - $ - $ -Expensed equip/software $ - $ - $ -Occupancy, supplies, other $ - $ - $ -Operations Total $ - $ - $ -
Materials/direct costs $ - $ - $ -Cost of Goods Sold $ - $ - $ -
Gross Margin $ - $ - $ -
Gross Margin Assumptions$ in 000’s
Other Uses of Cash
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Operating losses ([SALES-COGS-OPX] <0)
CAPX
Other assets (deposits, prepaid expenses, accounts receivable, inventory)
Debt payments
Forecasting CAPX
30
Outlining your Equipment Needs
Computers and Software
Industry Specific Equipment
Leasehold Improvements
Furniture
Sources of Cash
31
Operating profit ([SALES-COGS-OPX] >0)
Equity financing
Debt financing
Customer prepayments
Accounts payable
Debt Financing
32
Growth capital loans
Equipment loans
Equipment leases
Account Receivables lines of credit
33
January February MarchResearch & Development, EngSalary and related 36 36 48Recruiting – – 8Travel 1 1 1Consulting/outside services 5 5 5Expensed equip/software 4 4 4Development related 17 17 17Occupancy, supplies, other 2 2 2Research & Development, Eng Total 65 65 85
Sales & MarketingSalary and related – – –Recruiting – – –Travel – – –Consulting/outside services – – –Sales & Marketing related – – –Occupancy, supplies, other – – –Sales & Marketing Total – – –
General & AdminSalary and related 15 15 15Recruiting – – –Travel 1 1 1Consulting/outside services 3 3 3Legal, insurance, fees 10 10 10Occupancy, supplies, other 13 13 13General & Admin Total 42 42 42
Total Operating Expenses 106 106 126
Operating Income (Loss) ($106) ($106) ($126)
Operating Expenses$ in 000’s
34
January February March
Operating Income (Loss) ($106) ($106) ($126)Inventory (increase) decrease – – –Accnts Rec (increase) decrease – – –Prepaids/Deposits (increase) decrease (5) (5) (5)Accnts Payable increase (decrease) 14 14 14Accrued Payroll increase (decrease) 1 1 1
Cash Flow from Operations (97) (97) (116)
Cash (Used for) Capital Expenditures (50) (50) (50)
Debt Service Payments (prin + int) – – –Equip/Growth Capital Financings – – –Equity Investments 10,000 – –
Cash Flow from Financing 10,000 – –
Increase (Decrease) in Cash $9,853 ($147) ($166)
Beginning Cash $– $9,853 $9,707
Ending Cash $9,853 $9,707 $9,541
Sources & Uses of Cash $ in 000’s
Financings, Cash Burn, Cash Balance
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0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q13 Q14 Q15 Q16 Q17 Q18 Q19 Q20
Cumulative Financings
Cumulative Cash Burn
Cash Balance
Common Forecast Problems
36
Time to market longer than forecast
R&D staff ramp slower than forecast
CAPX needs higher than forecast
Sales ramp slower than forecast (both units & ASP)
COGS higher than forecast
Formed in 199540 experienced professionals –Cross all industries & stages
Experience with:–Over 200 companies all stages–Over 20 Venture Capital firms–Over 15 IPO’s–Over 20 Mergers & Acquisitions
Cost effective solution for startups
QUESTIONS?
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