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finance workshop - M V Financial Modeling Workshop San Jose...

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Unformatted text preview: M V Financial Modeling Workshop San Jose State University SVCE Finance Workshop April 11, 2009 Presented by Anthony Nassar Founder & Principal Venture Momentum, Inc. 1.415.897.0195 anthony@venturemomentum.com www.venturemomentum.com copyright © 2009 Venture Momentum, Inc. M V Background • Founded Venture Momentum in 1994 • 20+ years experience in finance • Focus on early stage startups in 2 areas: financial modeling and financial operations • Prior, 4 years in finance and wealth management with French group, 3 years in planning with a Silicon Valley semiconductor startup, and 6 years in finance, corporate planning and project management with Fair Isaac • Lead workshops on financial modeling and financial management • Publish articles for startup entrepreneurs • MBA NYU, MS Columbia University, Engineering Diploma Ecole Centrale de Paris copyright © 2009 Venture Momentum, Inc. M V Outline • Purpose • Approach • Concepts • VMI Financial Roadmap copyright © 2009 Venture Momentum, Inc. M V Purpose of Financial Plan 1. Assess Feasibility of New Business Concept and Cash Requirements 2. Formulate Team’s Vision; Quantify Business Model; Establish Financial Objectives and Milestones for Team, and Set Benchmarks to Measure Performance 3. Raise Capital 4. Provide Financial Data for Business Plan 5. Tell Story to Outside World: Investors, Lenders, Business Partners, Auditors, etc. 6. Provide Adaptive Tool to Adjust Business Model as Experience is Gained in the Field copyright © 2009 Venture Momentum, Inc. M V Funded or Bootstrapped copyright © 2009 Venture Momentum, Inc. M V Approach 1. Top-Down 2. Bottom-up 3. Create a Robust Framework Core Assumption models to exclusively drive revenues, staffing & expenses, and capital in the model Scope & Navigation Scaling & Data Integrity Granularity, Planning Horizon and Realistic Precision Version control – filenames, tracking changes and distribution Reporting, Analyses and Dashboards copyright © 2009 Venture Momentum, Inc. M V Approach (Cont’d) 4. Understand and Define Your Revenue Model Drivers (Market, Competition, Product/Service Offering, Customer, Pricing, Terms, Sales Cycle, Customer Acquisition, Selling Resources, Churn, Data Flow) 5. Gather Data Elements Before Starting (Pricing, Salaries, Consultants, Cost of Space/sqft, Servers, Operating expenses, etc…) 6. Build a Realistic Product Plan A well thought out Product Plan provides clarity about which products will be offered, development times, and release dates. It also drives the timing of revenues, expenses and staffing copyright © 2009 Venture Momentum, Inc. M V Approach (Cont’d) 7. Build a Credible Revenue Model 8. Expenses, Headcount, Space & Equipment Develop expenses by department: Cost of Revenues, R&D, S&M, G&A Cost of revenues should track revenue model Model headcount when possible Expenses, space and equipment should track headcount when possible 9. Financial Statements Create Income Statement by Department Create Income Statement by Account Category Build Balance Sheet and Statement of Cash Flows Beware of Cash Plug copyright © 2009 Venture Momentum, Inc. M V Approach (Cont’d) 10.Key Metrics Cash Requirements Cash Burn, Cash Flow and Breakeven Points Operating Results and Margins Revenue Breakdown Expense Highlights Balance Sheet Highlights FTE Metrics and Expense per Employee Customer Metrics: Number, Cost to Acquire, Cost to Service and Margin per Customer Traffic Metrics: Unique Visitors, Unique Visits, Pageviews, Referral Rates, Churn Rates Other Important Business Specific Metrics copyright © 2009 Venture Momentum, Inc. M V Approach (Cont’d) VALIDATE copyright © 2009 Venture Momentum, Inc. Skills Finance & Accounting Modeling Excel Project Management Endurance & Perseverance copyright © 2009 Venture Momentum, Inc. M V M V Concepts • GAAP or Generally Accepted Accounting Principles • Financial Statements • Cash vs. Accrual copyright © 2009 Venture Momentum, Inc. M V Concepts (Cont’d) • GAAP - Generally Accepted Accounting Principles Guidelines set by the Financial Accounting Standards Board for measuring, processing and reporting financial information. copyright © 2009 Venture Momentum, Inc. M V Concepts (Cont’d) • Financial Statements – Income Statement • Measures Operating Performance during a period • Revenues – Expenses = Net Income – Balance Sheet • Snapshot of resources (assets) and claims (liabilities and shareholders’ equity) as of a specific date • Assets = Liabilities + Equity – Statement of Cash Flows • Reports sources and uses of funds during a period copyright © 2009 Venture Momentum, Inc. M V Concepts (Cont’d) ERP4US Income Statement Year 2 Net Revenues $4,401,520 Cost of Revenues 2,079,429 Gross Profit 2,322,091 Gross Margin 53% Development 4,920,770 Sales & Marketing 3,010,338 General & Administrative 1,623,198 Total Operating Expenses 9,554,306 Operating Profit Operating Margin EBITDA Interest Income Income Before Taxes Income Taxes Net Income (7,232,216) -164% (7,094,188) 70,593 (7,161,623) 800 (7,162,423) copyright © 2009 Venture Momentum, Inc. M V Concepts (Cont’d) ERP4US Balance Sheet FALSE Period ended month 24 Assets Current assets: Cash and cash equivalents Accounts Receivable Allowance for Doubtful Accounts Prepaid expenses Total current assets Property & Equipment, net Deposits Total assets Liabilities and Shareholders' Equity $4,314,310 519,480 (25,974) 63,851 4,871,666 345,167 110,700 5,327,533 Current liabilities: Accounts payable & accrued expenses Deferred Revenues-Current Income taxes payable Total current liabilities Total liabilities Shareholders' equity: Common stock Preferred Stock-Series A Preferred Stock-Series B Retained Earnings Total shareholders' equity Total liabilities and shareholders' equity copyright © 2009 Venture Momentum, Inc. 889,957 889,957 889,957 5,000 4,950,000 9,920,000 (10,437,424) 4,437,576 $5,327,533 M V Concepts (Cont’d) ERP4US Statement of Cash Flows FALSE Year 2 Cash flow from investing activities: Cash flow from operating activities: Net income (loss) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation Changes in assets and liabilities Accounts Receivable Allowance for Doubtful Accounts Prepaid expenses Deposits Accounts payable & accrued expenses Deferred Revenues-Current Income taxes payable Net cash provided by operating activities ($7,162,423) Purchase of Property & Equipment Net cash used in investing activities 138,028 (519,480) 25,974 (38,874) (83,500) 701,285 (6,938,990) (261,500) (261,500) Cash flow from financing activities: Proceeds from issuance of common stock Proceeds form issuance of Series A Preferred Stock* Proceeds form issuance of Series B Preferred Stock* 9,920,000 Net cash provided by (used in) financing activities 9,920,000 Net increase (decrease in cash) Cash at the beginning of the period Cash at the end of the period * Net of qualifying transaction expenses copyright © 2009 Venture Momentum, Inc. 2,719,510 1,594,800 4,314,310 M V Concepts (Cont’d) • Cash Accounting – Revenue recognized when cash is received from customers – Expenses are recognized when cash is paid to suppliers, employees and service providers – Provides poor matching of revenues and expenses – Not acceptable under GAAP copyright © 2009 Venture Momentum, Inc. M V Concepts (Cont’d) • Accrual Accounting – Revenue is recognized as goods are sold or services are rendered – Expenses are recognized after they are matched with corresponding revenues, or as period costs – Provides proper matching of revenues and expenses – Required under GAAP copyright © 2009 Venture Momentum, Inc. M V Concepts (Cont’d) Illustration – You launch an Internet start-up on 12/1/08; Initial cash investment in start-up is $5,000; – A corporate subscriber pays $24,000 for a 12 month subscription starting on 1/1/2009; – You are the only employee as of 12/31/08; your monthly salary (incl. payroll taxes) is $10,000; no employee benefits in place yet; no other expenses incurred or assets purchased in first month; – The Company is on a calendar basis; no taxes or accrued liabilities assumed in first year. copyright © 2009 Venture Momentum, Inc. M V Concepts (Cont’d) Illustration I (cont’d) Financial Results for period ending Dec 31, 2008 Cash Basis Accrual Basis Income Statement Revenues Cost of Revenues Income Statement $24,000 0 Revenues Cost of Revenues Gross Profit 24,000 Gross Profit Operating Expenses 10,000 Operating Expenses Net Income (loss) $14,000 Balance Sheet Net Income (loss) $0 0 0 10,000 ($10,000) Balance Sheet $19,000 19,000 Cash Total Assets Liabilities 0 5,000 Common Stock Retained Earnings Liabilities & Equity 14,000 $19,000 Cash Total Assets Liabilities Common Stock $19,000 19,000 24,000 5,000 Retained Earnings (10,000) Liabilities & Equity $19,000 copyright © 2009 Venture Momentum, Inc. M V VMI Financial Roadmap • VMI Financial Roadmap – ERP4US, Inc. – On Demand ERP solution for SMB – Integration of all necessary modules to run a small/midsize business: Accounting & Finance, HR, CRM, SFA, Support, Stock Options, Contracts, Project Mgt, … – Future offering to include vertical solutions: manufacturing, retail, hospitality, medical, … copyright © 2009 Venture Momentum, Inc. M V VMI Financial Roadmap (Cont’d) • VMI Financial Roadmap Components 1. VMI Navigator 2. Product Plan 3. Assumptions-Market & Revenue 4. Assumptions-Employees Consultants and Space 5. Assumptions-Expenses 6. Assumptions-Capital 7. Forecast Summary 8. Graphs 9. Key Metrics 10.Proforma Inc. Stat. by Dept 11.Proforma Inc. Stat. Detailed 12.Balance Sheet 13.Statement of Cash Flows 14.Ratios 1 15.Ratios 2 copyright © 2009 Venture Momentum, Inc. M V VMI Financial Roadmap (Cont’d) • VMI Financial Roadmap Components (cont’d) 16.Direct Sales Model 17.Customer 18.Revenues 19.Staff & Space 20.Cost of Revenues 21.Development 22.Sales & Marketing 23.G&A 24.Equipment & Software 25.AR 26.AP 27.Prepaid 28.Graph Data 29.Valuation 30.Proforma Capitalization 31.Cap Table 32.Debug copyright © 2009 Venture Momentum, Inc. ...
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