Financial Modeling for StartupsIt’s not that difficult…

– Financial Consultant

“Financial modelling is performed by trained professionals, don’t try this at home!”

Finance for Non-Finance People

Some Basics FirstGross Merchandise

Value(All goods sold)

Commission (Portion of it coming as income)

Service Income Service Income

Other Income Other Income

Turnover Revenue

BS and P&LAssets Liabilities

Tangibles Payables (Rent, Wage, etc.)

Cash Debt

Payments Recievable

Accounts Payable

Profit and Loss Statement

Income

Expenditure

Profit/Loss

– My Experience

“Banks worry about Balance Sheet, Investors worry about Profit & Loss Statement”

Expenses (It is easier!)• You know what you are going

to spend (At least better than what you are going to get)

• The first month is the easiest to project

• After that reality will spoil the party

• Many expenses can be foreseen

• Ideally break each thing down to separate sheets

Expenses

Rental Expenses

Salary Expenses

Electricity, Water, Transport,

Communication,

Admin, Marketing, Sales,

etc.Logistics/Servers/

Hardware Buying

Salary ExpensesMonth 1 Month 2

DeveloperAvg. Salary(Increment)

DesignerAvg. Salary

SalespeopleAvg. Salary

MarketingAvg. Salary

Investment• Initial investment may need to

be made or may have already been made

• Capital Expenses are all the things that you may have bought or need to buy. Computers, vehicles, etc.

• Working Capital is what we put under expenses. Expenses that the company cannot generate as revenue.

Investment

Capital Expenses

Working Capital

Advances

Business Model Canvas

Revenue Model

Income

• Based on the Revenue Model project the various income streams

Advertising Income

Sales Income

Exclusive Tie-Ups

Projecting Sales is Hard (even for established companies!)

Month 1 Month 2 Month 3

Sales Income

Growth Rate

Advertising Income

Growth Rate

Projecting Income• You need some data to accumulate before you can

project

• As the founder you know your sales best

• When you say 1000 users in a month, its 33 per day. Can you personally sell it to as many?

• The Market is hard to predict! Once you get a grasp of demand, projecting is easier, but still not accurate

Financial ModelIncome Stream Year 1 Year 2 Year 3 Year 4 Year 5

Revenue 1,81,40,936 7,71,17,523 21,12,02,880 78,28,42,475 1,66,25,08,512

Transaction Income 18,14,094 77,11,752 2,11,20,288 7,82,84,247 16,62,50,851

Other Income 0 0 0 0 0

Total Income 18,14,094 77,11,752 2,11,20,288 7,82,84,247 16,62,50,851

Expenses

Rental Expenses 72,000 1,20,000 6,00,000 9,00,000 12,00,000

Server Expenses 72,000 1,44,000 2,88,000 5,76,000 11,52,000

Salary Expenses 12,25,000 42,00,000 1,20,15,000 2,23,56,000 3,09,67,200

Marketing Expenses 1,20,000 2,40,000 7,20,000 21,60,000 43,20,000

Elec & Water Expenses 24,000 24,000 96,000 1,44,000 2,16,000

Communication Expenses 60,000 1,20,000 3,60,000 7,20,000 14,40,000

Travel Expenses 1,20,000 2,40,000 7,20,000 14,40,000 57,60,000

Compliance Expenses 48,000 48,000 72,000 1,08,000 1,62,000

Administrative Expenses 24,000 1,20,000 4,80,000 7,20,000 10,80,000

Miscillaneous Expenses 24,000 1,20,000 4,80,000 7,20,000 10,80,000

Gateway Expenses 6,34,933 15,42,350 42,24,058 1,56,56,849 3,32,50,170

Total Expenses 24,23,933 69,18,350 2,00,55,058 4,55,00,849 8,06,27,370

Profit/Loss 6,09,839 7,93,402 10,65,230 3,27,83,398 8,56,23,481

Valuation• If I am investing 1 Crore in your company, how

much equity should I take?

• How much do I want the 1 Crore to become?

• Every investor has a minimum return that he/she is seeking from an investment

• Let us say 10 Crores…

Valuation• Let us say that you are doing a revenue run rate of

‘X’ today

• In the next 5 years what do I as an investor feel is achievable?

• Based on the ‘Revenue’, ‘Revenue Growth’ and perhaps ‘Profits’ that I feel is possible in the next 5 years, I have an achievable valuation in mind

• Let us say that is 100 Crores

Valuation

• For my 10 Crore exit I would need to have 10% of the company at that time of exit

• I also need to consider the further rounds of funding and dilution which may occur

• I may ask anything between 10% and 15% based on the above factor

Reach me at:

Twitter: @viveksrn

LinkedIn: in.linkedin.com/in/viveksrn

www.vsprudenceadvisors.com

www.viveksrinivasan.com