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
 Clients- Admob, ArcSight, Aruba Networks, Palo
Alto Networks, Xros, Kace, Aster Data, Clearwell,
Mimosa, Rhapsody, Lookout, Kior, Calera
 Significant Experience with Financial Plans
Starting Your Company
Where to Begin
Why You Need A Model
 Determine amounts and timing of cash
needed to reach milestones and cash flow
breakeven
 Determine the sources and uses of cash
from startup to breakeven
 To help investors understand the ROI & Exit
4
The Plan Process
Initial $ Needed
Compelling
Idea
Research Study
Markets &
Competitors
Financial
Statements
Understand
Financial
Assumptions
& Why They
Matter
Develop
Company
Financial
Model &
Validate
What Milestones
Break Even Point
Market / % Share
Profitability/Exit
Developing A Financial Model
 Knowledge Prerequisites
 Sources of Comparative Information
 Presentation Format
 Development Steps
 Using the Model
 Frequent Problems
6
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
 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
 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
 Research & understand your competitors
 Public Information
 Bankers, attorneys, advisors
 How do you differentiate yourself from competitors
10
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
 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
SalesforceS-1 Information from Edgar
Prospectus Summary
Risk Factors
Special Note Regarding Forward-Looking Statements
Use of Proceeds
Dividend Policy
Capitalization
Dilution
Selected Consolidated Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Business
1
5
19
20
20
21
22
23
25
41
Page
Management
Certain Relationships and Related Party Transactions
Principal Stockholders
Description of Capital Stock
Shares Eligible for Future Sale
Underwriters
Legal Matters
Experts
Change in Independent Accountants
Where You Can Find Additional Information
Index to Consolidated Financial Statements
55
69
72
74
78
80
83
83
83
83
13
Salesforce S-1 Information from Edgar
14
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
Format of Income Statement
16
Format of Cash Flow
17
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
 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
 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
 Number of units sold
 Average selling price per unit
 Timing of orders vs. delivery
 Bookings versus Revenue
 Timing of customer payments
21
COGS Assumptions
Costs Related to Revenue Generation
 Manufacturing or Operations Dept Costs
 Materials or Hosting & Bandwidth
 QA & Testing
 Purchasing
22
Department Assumptions - OpX
 Research & Development
 Sales & Marketing
 General & Administrative
23
Research & Development Assumptions
Costs to achieve technical milestones
 Staffing
 Recruiting
 Consulting & Outside Services
 Development Costs
24
Sales & Marketing
Expenses required for sales forecast
 Staffing
 Recruiting
 Travel
 Consulting & Outside Services
 Advertising & Promotion
25
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
Staffing Assumptions
$ in 000’s
Assumptions
Employee Staffing (#)
Operations
Research & Development, Eng
Sales & Marketing
General & Admin
Fringe Benefit % of Salary
Bonus % of Salary
January February
March
0
2
0
1
20%
0
0
2
0
1
20%
0
0
3
0
1
20%
0
$15.3
$15.0
$13.3
$12.5
$12.5
$12.5
Recruiting Cost per new Emp ($000)
Operations
Research & Development, Eng
Sales & Marketing
General & Admin
$8.0
$8.0
$8.0
$8.0
$8.0
$8.0
$8.0
$8.0
$8.0
$8.0
$8.0
$8.0
Travel Cost per Emp FTE ($000)
Operations
Research & Development, Eng
Sales & Marketing
General & Admin
$0.2
$0.3
$1.0
$0.5
$0.2
$0.3
$1.0
$0.5
$0.2
$0.3
$1.0
$0.5
Sales Commissions as % or Revenue
10%
10%
10%
Avg Employee Salary ($000)
Operations
Research & Development, Eng
Sales & Marketing
General & Admin
Gross Margin Assumptions
$ in 000’s
January
February
March
3
3
3
Bookings
$-
$-
$-
Revenue
$-
$-
$-
Salary and related
$-
$-
$-
Recruiting
$-
$-
$-
$-
$-
$-
Consulting/outside services
$-
$-
$-
Expensed equip/software
$-
$-
$-
Occupancy, supplies, other
$-
$-
$-
Operations Total
$-
$-
$-
Materials/direct costs
$-
$-
$-
Cost of Goods Sold
$-
$-
$-
Gross Margin
$-
$-
$-
Headcount (Year End)
Income Projection ($000)
Operations
Travel
28
Other Uses of Cash
 Operating losses ([SALES-COGS-OPX] <0)
 CAPX
 Other assets (deposits, prepaid expenses, accounts
receivable, inventory)
 Debt payments
29
Forecasting CAPX
Outlining your Equipment Needs
 Computers and Software
 Industry Specific Equipment
 Leasehold Improvements
 Furniture
30
Sources of Cash
 Operating profit ([SALES-COGS-OPX] >0)
 Equity financing
 Debt financing
 Customer prepayments
 Accounts payable
31
Debt Financing
 Growth capital loans
 Equipment loans
 Equipment leases
 Account Receivables lines of credit
32
Operating Expenses
$ in 000’s
January
February
March
36
–
1
5
4
17
2
65
36
–
1
5
4
17
2
65
48
8
1
5
4
17
2
85
Sales & Marketing
Salary and related
Recruiting
Travel
Consulting/outside services
Sales & Marketing related
Occupancy, supplies, other
Sales & Marketing Total
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
General & Admin
Salary and related
Recruiting
Travel
Consulting/outside services
Legal, insurance, fees
Occupancy, supplies, other
General & Admin Total
15
–
1
3
10
13
42
15
–
1
3
10
13
42
15
–
1
3
10
13
42
Total Operating Expenses
106
106
126
Operating Income (Loss)
($106)
($106)
($126)
Research & Development, Eng
Salary and related
Recruiting
Travel
Consulting/outside services
Expensed equip/software
Development related
Occupancy, supplies, other
Research & Development, Eng Total
33
Sources & Uses of Cash
January
February
March
($106)
($106)
($126)
Inventory (increase) decrease
–
–
–
Accnts Rec (increase) decrease
–
–
–
Prepaids/Deposits (increase) decrease
(5)
(5)
(5)
Accnts Payable increase (decrease)
14
14
14
Accrued Payroll increase (decrease)
1
1
1
Cash Flow from Operations
(97)
(97)
(116)
Cash (Used for) Capital Expenditures
(50)
(50)
(50)
Debt Service Payments (prin + int)
–
–
–
Equip/Growth Capital Financings
–
–
–
10,000
–
–
Cash Flow from Financing
10,000
–
–
Increase (Decrease) in Cash
$9,853
($147)
($166)
$–
$9,853
$9,707
$9,853
$9,707
$9,541
$ in 000’s
Operating Income (Loss)
Equity Investments
Beginning Cash
Ending Cash
34
Financings, Cash Burn, Cash Balance
Cumulative Financings
35,000
Cumulative Cash Burn
30,000
25,000
20,000
15,000
Cash Balance
10,000
5,000
0
Q1
Q2
Q3
Q4
Q5
Q6
Q7
Q8
Q9
Q10
Q11
Q12
Q13
Q14
Q15
Q16
Q17
Q18
Q19
Q20
35
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
 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
QUESTIONS?
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