BUSI 701 Artistic Entrepreneurship

1. BUSI 701Artistic Entrepreneurship Intro to Financials

2. Agenda • 3 Steps to Financials • Sources of Funding

3. Goal of Financials • Is venture viable? • How much $$ will it take to get there? • How will we monetize and distribute the value we create?

4. Goal of Financials • Viability • Start-up cost • Return

5. 3 Steps for Financials • Business model / back-of-the-napkin snapshot • Startup costs and projections • Financial statements

6. Step 1: Business Model • Revenue model • Pricing • Implementation/roll-out strategy • Marketing • Small changes in strategy can profoundly effect financials

7. Example Revenue Models • Retail store • E-store • B-to-B products or services • Consulting • Recurring fees • Membership • Software as a service • Razor/blade or printer/cartridge • Transaction fees

8. Step 1: Business Model • Refine your businesss model and revenue model while doing research • Start with simple spreadsheets and get more complex as you get more comfortable with your strategies • Slight changes in strategy can totally change your financials dramatically

9. Step 1: Napkin Snapshot • Very simple viability test: income - revenue • Assume that you are in full production, things are going great • Create sub-spreadsheets for “unit economics” and “key drivers” • This gives you a snapshot to see how profitable it could be • CCBackofNapkinFeasibility.xls

10. Cost Drivers • Salaries • Rent • COGS • Fixed vs. variable costs • Equipment • Insurance, legal, etc. • Make sure you are in line with industry

11. Step 2: Start-up Costs and Projections • Add start-up and projections • This gets very complex very quickly • Better to build your own rather than use template, but they are available • Must factor in loans and/or other financing • CC Simple Projections.xls • TIP: rent all the big items (buying is complicated)

12. Step 3: Financial Statements • Don’t attempt these until your business model is finished! • You will likely need a template or a CFO to get these. • Income Statement • Balance Sheet • Cashflow Statement

13. Recap: 3 Steps for Financials • Business model / back-of-the-napkin snapshot • Startup costs and projections • Financial statements

14. Agenda • 3 Steps to Financials • Sources of Funding

15. Sources of Funding • You and everyone you know • “Skin in the game” • “Family, friends and fools” • Doctors

16. Other Sources • Revenue • Loans • Grants • Angels • Venture Capital (VC) • Private Equity • IPO

17. Revenue • “Retained Earnings” • Means $$ that you earn is used to grow business • Generally implies slow, steady growth slow, steady growth

18. Loans/Debt • Generally from banks • Must have or be purchasing assets as collateral with low LTV ratio • Real estate • Machinery/equipment • Accounts receivable • SBA (Small Business Administration)

19. Debt (con’t) • Don’t be overly debt averse • Debt is great tool for creating value • Bankruptcy is also a great tool (compared to debtors prison) • “Convertible debt” converts to equity

20. Grants • “Free” money • Do not undervalue the cost of time and reporting • Students: akin to researching and applying for scholarships

21. Angels • Overused and misleading term • Don’t underestimate time in searching • Most angels these days are VC focused (implies super-fast growth, high tech)

22. Venture Capital (VC) • Equity = you are selling % of your company • Price is negotiable, but VCs tend to hold the cards • “Institutional” money • Must be superfast growth • Most expensive way to create value • Don’t underestimate risk of losing control

23. Private Equity • “Later stage” than VC • PE are money guys, VCs are startup guys • Back in the ’80s this was called LBO • Akin to house flippers

24. IPO • Initial public offering = “going public” • Like venture capital, selling % of company • Once public, the market decides the price