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Entrepreneurial Finance: Planning my Financial Strategy
Itxaso del-Palacio
smartinterns.co.uk
What do we know…
• What are the financial statements in the BP?• Accounting vs Entrepreneurial Finance• “Actual” vs “Pro Forma”• Cash vs Profit • Acquisition vs IPO• Burn Rate• “I’m looking for two-fifths of the post-, and for that I’ll put
up to the two”
Entrepreneurial Finance is not Accounting
Entrepreneurial Finance
- Income Statement (P&L)
- Cash-Flow Statement
- Balance Sheet
Income Statement or Profit & Loss (P&L)
Revenue/Income £100
Cost of Goods Sold (CGS) 50
Gross Profit £50
Expenses 30
Taxes 5
NET PROFIT £15
Variable costs
Operating Exp.-HR-Training-Outsourcing-Marketing-Infrastructure (Depreciation) Non-cash Expense
Accumulated Net Profit goes to Balance Sheet
Year 1 Year 2 Year 3…..
Balance Sheet: Assets and Liabilities
(dividends)
P/L
= Assets - LiabilitiesTangibleIntangible
(Accumulated Depreciation)
Cash-Flow StatementCash From/Used in Operating Activities-Paying customers-Salaries-Vendors-Landlord-…
Cash From/Used in Investing Activities-Purchase or sale of assets-….
Cash From/Used in Financing Activities-Borrowing and paying loans-Equity transactions with investors-Dividends -….
From Profit & Loss Statement
Accumulated Cash-Flow goes to Balance Sheet (liquidity)
Break-Even Point… and the Valley of Death
Number of units sold in whichTotal Costs = Total Revenues
Then – What are our financial hypotheses?
• Define your assumptions (4)
Workout your Financial Plan
Start from Assumptions:-Revenue-Operating Costs-Investment Assets-Timing of Events
Preliminary Financial Statement: -Income Statement-Balance Sheet-Cash-Flow Statement
Net Working Capital NeedExternal Financing needed?
Risk and Sensitivity Analysis
Investment Milestones Sources Stages of Capital
Complete the team, Customer development, formalize the
plan.
Product development, prototype, ready for launch.
Launch and growth phase.
Mature firm in a competitive context.
Seed or start-up
Development(Series A)
Growth(Series B, C, D…)
Competitive or maturity
Angels, grants,3 F’s (love $)Accelerators
VCs
VCsCorporate VC
Banks,Public equity market
Dealing with Investors How would you approach investors?
1. Develop a relationship with the investors – Investment is a marriage – It’s a very small world– Show them your milestones
2. Learn a new language
3. NDA – run away!
Dealing with Investors
4. Keep expectations low
5. Keep working on your start-up
6. Don’t believe it until…
7. Rejection is not personal
8. Avoid inexperienced investors – go for smart money!
9. How much money? – not too much, not too little
10.Rule of valuation: £x=25%
Remember to…
• Keep your “burn rate” low
• Make realistic assumptions
• Do you really need external money?– “Get married” only if you are “in love”
Thanks!
Q&AItxaso del Palacio