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Spring 2011
Tetuan Valley, April 2011
Week 3
Participating OrganizationsIn Collaboration with
Finance for Entrepreneurs
21/04/2011
Objective
Introduce students with tehcnological backgrounds to key financial concepts that are esential at the hour of starting a business
Result
•Comprehension of key financial indicators•Ability to parameterize the models given the face value of a startup and to make financial projections to investors
Duration
2 sessions, 4hr
Session 1• Concepts• Principals• Equations• Investors; Objectives and restrictions, stages, “Venture Capital” and
Value Levers• Conclusions for the entpreneur
Session 2• Business Plan• Price• Business Model• Other tools
21/04/2011 4
TIME VALUE OF MONEYEffect of compound interest
“A bird in the hand is worth two in the bush”
=
21/04/2011 5
DIVERSIFICATIONMarket vs. Company Risk
“Don´t put all your eggs in one basket”
21/04/2011 6
PRICE OF RISKCorrelation of Risk & Return
“There´s no such thing as a free lunch”
21/04/2011
Time value of money
Diversification
Price of risk
(Sharpe ratio)
Effect of compound interest
“A bird in the hand is worth two in the bush”
Market vs. Company Risk
“Don´t put all your eggs in one basket”
Correlation of risk & return “There´s no such thing as a free lunch”
IN GRAPHS
21/04/2011
BALANCE SHEET
STATEMENTS OF ANY COMPANY
21/04/2011
RELATIONSHIP BETWEEN ACCOUNTS
21/04/2011 10
Company with increasing profits
21/04/2011 11
But if the same company sells with a difference of payments above 5 months the company can go bankrupt
-100
0
100
200
300
400
500
600
700
Year 1 Year 2 Year 3 Year 4
Margen
Cobros
Pagos
Caja
Margin
Collections
Payments
Cash balance
4/21/2011
PROFIT AND LOSS
Earnings
COGS
Overhead Expenses
EBITDA
Depreciations and amortizations
Contribution Margin
EBIT
Financial result
EBT
Taxes
Net Result
+
-
-
-
-
4/21/2011 13
CASH FLOW STATEMENT
Collectibles
Payments (Direct / Overhead)
Operating Cash
-
Annual Cash Balance
Investments
Temporary financial earnings
Investment Cash
-
+
Capital Subscriptions
-
New Debt
Principal of debt
Dividends
Financial Cash
-
+
21/04/2011
Active where is my money Passive where does it come from
Long-Term OutsideCapital
Tangible EquityLong-Term Assets
Short-Term Assets
Short-Term OutsideCapital
Working Capital
BALANCE SHEET
InvestmentsDepreciations
DebtTreasuryInventory
CreditorsShort-term bankVAT
Banks
Social CapitalNet ResultsEarnings
21/04/2011
Price is what you pay. Value is what you get Warren Buffett
94 M EUR
VS
1 M Tshirt+ 1st liga
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Earnings Expenses EBITDA Amort. EBIT T in EBIT VariationWC
CAPEX FCF
FCF: what is it?
CAPM: r% = α + βp = Rf +(β*MRP)
WACC= Ke * (E / (D+E)) + Kd (D / (D+E))
FCF = Net income + depreciation – changes in working capital – Capital expenditures
NOPLATAmort.
21/04/2011
Brokers
Family officesSICAVs
CVC
PrivateBanking
Insurance & PensionFunds
Funds of Funds Investment
Banking
Angel Funds
Hedge Funds
Comercial Banks
Grants and Subsidies
Endowments
¿?
Sovereign Funds
WHO IS WHO
Involvement
Financial Purity
Industrialists
Venture Capital
Friends and
family
Business Angels
Family Office
Own Money
Others Money
Funds Origin3
2
1
Source: Perennius
HOW PLAYERS INVEST
21/04/2011
INVESTMENT STAGES
THE CHASM
Why they Invest What they Measure Decision Time
Family, Friends and Fools
ConfidencePersonal
CommitmentFast
Subsidies and Public Assistence
Policy alignments
Compliance merits
Slow
Business Angels Personal affinity Profitability Fast
Venture CapitalistsInvestment
criteriaProfitability Slow
Industrial Partners Strategic criteriaContribution to
businessSlow
Source: HighGrowth; Elaboración Okuri Ventures
INVESTMENT CRITERIA
21/04/2011
Target yearly return
Holding period(years)
Investment death rate
Entry/exit multiplier
25%+ 3-5 <20% x3,5
25%+ 3-5 >60% x10+
PE
VC
15%+ 4-7 >80% x20+BA
DESIRED RETURN
0
5
10
15
20
25
Sales Margin Debt Arbitration Total
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Shareholder Return
Investment Multiplier
PE
VC
Source: Cifras orientativas
ORIGIN OF MULTIPLIERS-LEVERS
21/04/2011
1 / (1-n)
Source: http://www.paulgraham.com/equity.html
CONCLUSION
