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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

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Tiecon 2010 money money money how much do i need how long will it last how to be convincing
Tiecon 2010Money, Money, MoneyHow Much Do I Need?How Long Will It Last?How To Be Convincing


Deborah kranz

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


Tiecon 2010 money money money how much do i need how long will it last how to be convincing

Starting Your Company

Where to Begin


Why you need a model

Why You Need A Model

  • Determine amounts and timing of cash needed to reach milestones and cash flowbreakeven

  • Determine the sources and uses of cash from startup to breakeven

  • To help investors understand the ROI & Exit

4



Developing a financial model

Developing A Financial Model

  • Knowledge Prerequisites

  • Sources of Comparative Information

  • Presentation Format

  • Development Steps

  • Using the Model

  • Frequent Problems

6


Knowledge prerequisites

Knowledge Prerequisites

Understand Your Industry

  • What Problem Am I Solving?

  • What Products & Services Am I Providing

  • Understand & Analyze Your Customers & Markets

  • Understand & Analyze Competitors

7


Knowledge of products services

Knowledge of Products & Services

  • Articulate problem you are solving & size of problem

  • What is the value proposition I can offer?

  • Understand & determine technology road map and specify key milestone dates

  • Understand & determine pricing for products

  • What are my competitive advantages?

  • Are there barriers to entry?

  • What are milestone dates for revenue

8


Knowledge of markets customers

Knowledge of Markets & Customers

  • 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?

9


Analysis of competitors

Analysis of Competitors

  • Research & understand your competitors

    • Public Information

    • Bankers, attorneys, advisors

  • How do you differentiate yourself from competitors

10


Sources of comparative data

Sources of Comparative Data

  • Market Studies

    • Industry report (Hoovers,1st Research)

    • Investment bankers (Goldman, Morgan Stanley)

    • Big 4 CPA industry reports

    • Google

11


More sources of comparative data

More Sources of Comparative Data

  • EDGAR System

    • S-1,10K (financial data, business)

    • Accessible through Yahoo Finance

    • Google “Company Name S-1”

  • Financial Consultants (Kranz & Assoc)

    • Comparative Start Ups

12




Presentation format

Presentation Format

  • 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

15




How to use the model

How To Use The Model

  • Go to www.kranzassoc.com

  • Click on Resource Tab Useful Articles

  • Tiecon Model Available May 20, 2010

  • Input Cells are Blue

18


Definitions

Definitions

  • 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

19


Steps in developing plan

Steps in Developing Plan

  • 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

20


Bookings revenue assumptions

Bookings & Revenue Assumptions

  • Number of units sold

  • Average selling price per unit

  • Timing of orders vs. delivery

    • Bookings versus Revenue

  • Timing of customer payments

21


Cogs assumptions

COGS Assumptions

Costs Related to Revenue Generation

  • Manufacturing or Operations Dept Costs

  • Materials or Hosting & Bandwidth

  • QA & Testing

  • Purchasing

22


Department assumptions opx

Department Assumptions - OpX

  • Research & Development

  • Sales & Marketing

  • General & Administrative

23


Research development assumptions

Research & Development Assumptions

Costs to achieve technical milestones

  • Staffing

  • Recruiting

  • Consulting & Outside Services

  • Development Costs

24


Sales marketing

Sales & Marketing

Expenses required for sales forecast

  • Staffing

  • Recruiting

  • Travel

  • Consulting & Outside Services

  • Advertising & Promotion

25


General administrative

General & Administrative

  • Staffing

    • CEO, Finance/Accounting, HR, IT

  • Recruiting

  • Consulting & Outside Services

    • Legal (General & IP)

    • Audit and Tax

  • Facilities (rent, utilities, communications)

  • Supplies, other

26



Tiecon 2010 money money money how much do i need how long will it last how to be convincing

Gross Margin Assumptions$ in 000’s

28


Other uses of cash

Other Uses of Cash

  • Operating losses ([SALES-COGS-OPX] <0)

  • CAPX

  • Other assets (deposits, prepaid expenses, accounts receivable, inventory)

  • Debt payments

29


Forecasting capx

Forecasting CAPX

Outlining your Equipment Needs

  • Computers and Software

  • Industry Specific Equipment

  • Leasehold Improvements

  • Furniture

30


Sources of cash

Sources of Cash

  • Operating profit ([SALES-COGS-OPX] >0)

  • Equity financing

  • Debt financing

  • Customer prepayments

  • Accounts payable

31


Debt financing

Debt Financing

  • Growth capital loans

  • Equipment loans

  • Equipment leases

  • Account Receivables lines of credit

32


Operating expenses in 000 s

Operating Expenses$ in 000’s

33


Sources uses of cash in 000 s

Sources & Uses of Cash $ in 000’s

34


Financings cash burn cash balance

Financings, Cash Burn, Cash Balance

Cumulative Financings

Cumulative Cash Burn

Cash Balance

35


Common forecast problems

Common Forecast Problems

  • 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

36


Tiecon 2010 money money money how much do i need how long will it last how to be convincing

  • Formed in 1995

  • 40 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