Se ha denunciado esta presentación.
Utilizamos tu perfil de LinkedIn y tus datos de actividad para personalizar los anuncios y mostrarte publicidad más relevante. Puedes cambiar tus preferencias de publicidad en cualquier momento.

FInancial Modeling and Valuations for Startups: Telling your Story with Numbers

Telling your story with numbers, building a solid financial model and determining pre-money valuations for fundraising, are some of the most challenging activities for entrepreneurs.

Creating a set of realistic financial projections is critical to effectively communicating valuation expectations to investors and potential partners, while at the same time serving as an important tool to help articulate how you will prioritize spending and maximize the return on investment for an investor.

Based on her experiences as a valuation expert, CFO, start-up advisor and Stanford Lecturer, Efrat Kasznik will provide practical, hands-on tools on how you can :

• Build a robust business and financial model, based upon realistic expectations and sound assumptions

• Analyze different revenue models and cost structures associated with the formation of an emerging venture

• Implement best practices for structuring short and long term financial projections for your business plan and investor fundraising

• Understand the factors and models that determine startup valuations throughout the funding cycle, from seed funding to an exit event

• Successfully communicate your financial vision and understanding to investors

  • Inicia sesión para ver los comentarios

FInancial Modeling and Valuations for Startups: Telling your Story with Numbers

  1. 1. TELLING YOUR STORY WITH NUMBERS Efrat Kasznik, Founder & President Foresight Valuation Group, LLC October 14, 2014 San Diego, CA FINANCIAL MODELING AND VALUATIONS FOR STARTUPS:
  2. 2. “Are Accountants and CFOs Killing Innovation?” -- New Knowledge Online Magazine, Foresight Valuation Group © 2014 INSEAD, March 7, 2013
  3. 3. About Me: Efrat Kasznik ¨ Founder and President, Foresight Valuation Group, a Silicon- Valley based Intellectual property (IP) valuation, strategy and start-up advisory firm. ¨ Valuation and strategy expert, with 20 years of experience analyzing IP and technologies across industries ¨ Lecturer, Stanford Graduate School of Business ¨ Chair, Cloud Committee, Licensing Executives Society (LES) ¨ Top IP strategists, IAM 300 List 2013-2014 ¨ Co-founder, CFO and Advisor to startups and incubators in the US and Europe, including: Stanford Venture Lab, The HUB Trieste, Astia Angel Fund Foresight Valuation Group © 2014 3
  4. 4. Guess the Company? Foresight Valuation Group © 2014 4
  5. 5. The Valuation-Information Timeline Seed Funding Series A Series B… Foresight Valuation Group © 2014 5 M&A IPO Available Information Low High
  6. 6. Outline ¨ The Funding Cycle ¨ Building a Financial Model using CURVE TM ¨ The Startup Valuation Puzzle Foresight Valuation Group © 2014 6
  7. 7. The Funding Cycle Foresight Valuation Group © 2014
  8. 8. The Funding Cycle Foresight Valuation Group © 2014 8
  9. 9. Sources of Cash Debt $ Equity Foresight Valuation Group © 2014 9 Revenues
  10. 10. Sources of Cash: Equity Types Who? Return Pros Cons • Common Stock • Preferred Stock • Private investors (Angels) • Institutional investors (VCs) • Public investors (IPO) • Price Appreciation • Dividends Foresight Valuation Group © 2014 10 • Long term payback • No drag on ST cash flow • No collaterals • Not Taxable • Ownership dilution • Regulatory and reporting compliance • Liquidity, voting preferences (preferred stock)
  11. 11. Sources of Cash: Debt Types Who? Return Pros Cons • Loans • Line of credit) • Convertible Notes (hybrid) • Financial Institutions (Banks) • States, Cities • Public (bonds) • Periodic Interest • Repayment of Principal • Collateral (in case of default) Foresight Valuation Group © 2014 11 • No ownership dilution • No preferential voting rights • Not taxable • Interest is tax deductible • Short term payback (usually) • Burden on monthly cash flows • Lien on assets (collateral) • Available to revenue-producing companies • Extensive disclosure to lenders
  12. 12. Sources of Cash: Revenues Types Who? Return Pros Cons • Sales of Products & Services • Subscriptions • Licensing • Advertising • Sponsorships • Customers • Partners • Channels • Brands • Tangible: products or services • Maintenance • Upgrades • User community Foresight Valuation Group © 2014 12 • No ownership dilution • No preferential voting rights • Access to user/ consumer data • Fulfillment liability • Taxable income
  13. 13. The Equity Funding “Triangle”: The Right Funding at The Right Time Funds Raised ($) Foresight Valuation Group © 2014 13 Ownership (%) Pre-Money Valuation ($) < $1M $2M 33%
  14. 14. Less than 1% of New Businesses are Venture Funded Source: The Kauffmann Firm Survey, March 2008 Foresight Valuation Group © 2014 14
  15. 15. Total VC Investments: 2010 to Date Foresight Valuation Group © 2014 15
  16. 16. VC-backed Exits: 2010 to Date Foresight Valuation Group © 2014 16
  17. 17. Building a Financial Model Foresight Valuation Group © 2014
  18. 18. Startup Financial Management ¨ Cash management ¨ Accounting/Taxes ¨ Financial planning/budgeting ¨ Fundraising Foresight Valuation Group © 2014 18
  19. 19. Cash Management ¨ Startups often focused on short-term cash management ¨ Don’t lose sight of big picture! ¤ Bootstrapping is not a financial strategy ¤ Don’t make compromises that hurt your long term goals ¤ Goal should always be increasing value of company Foresight Valuation Group © 2014 19
  20. 20. The CURVE TM Financial Model COST USERS REVENUES Foresight Valuation Group © 2014 20 VALUATION for ENTREPRENEURS
  21. 21. Goals for Financial Modeling ¨ Manage Investor Expectations ü True for all companies, from startups to public co’s ¨ Set Foundation for Valuation ü Understand valuation trajectory over time ¨ Create an Operating Budget: ü Evaluate funding needs & funding sources ü Prioritize spending to optimize return on investment Foresight Valuation Group © 2014 21
  22. 22. Financial Model Flow: Telling Your Story with Numbers User/ Customer/Unit Rollout: Model Infrastructure Revenue Buildup: Return on Investment/ Valuation Foresight Valuation Group © 2014 22 Cost Buildup: Basis for fundraising
  23. 23. 1. User/Customer/Unit Rollout The User Base is the infrastructure on which the financial model is built: q Choose a modeling unit q Roll out users based on: Foresight Valuation Group © 2014 u Go-to-Market plan u Product/engineering roadmap q Benchmark results against target market to estimate penetration
  24. 24. User Rollout Example: Content Aggregator Mobile App Modeling Unit Definition: User Account Foresight Valuation Group © 2014 24
  25. 25. User Rollout Trajectory: Mobile Apps Build from the Bottom UP User rollout trajectory is modeled by Time To A Million downloads, based on other popular applications Foresight Valuation Group © 2014 25
  26. 26. User Rollout Example: Five Year Forecast Results Company accounts at end of year Year 1 • 0.6 million Year 2 • 2.1 million Year 3 • 5.8 million Year 4 • 10.4 million Year 5 • 16.4 million Foresight Valuation Group © 2014 26 20 18 16 14 12 10 8 6 4 2 -­‐ Company Accounts 0 5 10 15 20 25 30 35 40 45 50 55 60 Downloads (Millions) Months From Launch ToTotatal lB Caotmzup aAncyc Aouccnotus n(tMs M(M)M )
  27. 27. Benchmarking Your Results 1. Compare “Apples to Apples” when showing market penetration ¤ Choose the right market for the calculation 2. Make Sure you are “In the Range” ¤ And if not in the range you need a very good explanation why you are an outlier! 3. Standardize your comparison units: ¤ Per User ¤ Per Employee ¤ Per Unit Foresight Valuation Group © 2014 27
  28. 28. User Benchmarking: Top Down Penetration 300.00 250.00 200.00 150.00 100.00 50.00 -­‐ Jan-­‐13 Apr-­‐13 Jul-­‐13 Oct-­‐13 Jan-­‐14 Apr-­‐14 Jul-­‐14 Oct-­‐14 Jan-­‐15 Apr-­‐15 Jul-­‐15 Oct-­‐15 Jan-­‐16 Apr-­‐16 Jul-­‐16 Oct-­‐16 Jan-­‐17 Apr-­‐17 Jul-­‐17 Oct-­‐17 Millions Foresight Valuation Group © 2014 28 Internet Users in La?n America (MM) Hispanic ownership of mobile devices, US & Mexico (MM) Total Batzu Accounts (MM) 28 Total Company Accounts (MM)
  29. 29. 2. Revenue Buildup Revenues represent the opportunity for investors, and the basis of valuation for early stage ventures q Identify all monetization opportunities q Focus on top 2-3 revenue sources at the most! q Project revenues at least 3 years out (5 if possible) q Benchmark results against comparable companies Foresight Valuation Group © 2014
  30. 30. Sources of Revenues ¨ Product sales ¨ Services ¨ Subscriptions ¨ Licensing/Revenue Share ¨ Advertising ¨ Sponsorships ¨ Data mining Foresight Valuation Group © 2014 30
  31. 31. Sources of Revenue Example: Mobile Apps Advertising Freemium account Upgrades Foresight Valuation Group © 2014 31
  32. 32. Advertising Example: A User Session Log In Select Channel Select Story Consume Content Opportunity for ad impression Foresight Valuation Group © 2014 32 Opportunity for ad impression We have assumed that the average account holder will use app about 2 times per week
  33. 33. Advertising Revenue Unit: cost per mille (CPM) ¨ The cost of an online advertising campaigns is determined by the total number of impressions (= pages that users see) ¨ The impressions are sold as advertising space in units of 1,000 (mille) display ad impressions ¨ The rate quoted for impressions is the cost per mille, abbreviated as CPM ¤ CPM = the cost for 1,000 display ad impressions Foresight Valuation Group © 2014 33
  34. 34. Premium Subscription Example: Revenue Assumptions ¨ Upgraded account allows access to additional premium content and other premium features ¤ $2 monthly subscription price for premium accounts ¤ 3% of users become premium subscribers ¤ Cost of premium content is 20% of the upgrade subscription ¤ Premium accounts will be offered starting in Year 2 Foresight Valuation Group © 2014 34
  35. 35. Revenue by Source: Five Year Forecast Example Revenue ($MM) Gross Premium Account Revenue ($MM), Global Interstital Ad Revenue per Month ($MM) - - 60.0 50.0 40.0 30.0 20.0 10.0 Foresight Valuation Group © 2014 35 2.9 6.0 9.9 0.5 3.1 9.9 21.5 37.2 0.5 1.0 1.5 2.0 2.5 - Year1 Year2 Year3 Year4 Year5 Branded content channel revenue ($MM), Global 35 $14.3MM $29.5MM $49.6MM $4.1MM $1.0MM
  36. 36. Average Annual Revenue per User: Benchmark Analysis *$49.55 million gross revenue in year 5 / 13.74 million average Batzu accounts in year 5 = $3.61 average annual revenue per user $2.96 *$3.61 $4.84 $7.04 $7.50 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 Foresight Valuation Group © 2014 36 $9.56 $28.56 $- Twitter Batzu Facebook LinkedIn Pandora AOL Google 36 Company
  37. 37. 3. Expense Buildup Expenses represent the basis for fundraising : q Direct Cost >> vary with revenues (COGS) q Fixed Cost >> mostly payroll (org chart) q Other fixed cost: IT, office expenses, marketing, licensing, legal, professional fees q Benchmark Cost against expenses, industry ratios Foresight Valuation Group © 2014
  38. 38. Principals of Cost Planning ¨ Minimize the overhead (and inventory), and make cost as variable as possible, so you only pay when you make money ¨ Funding the overhead, and your working capital gaps, so you don’t dilute your shareholders Foresight Valuation Group © 2014 38
  39. 39. Cost Modeling Overview Cost Function: • Cost of Goods Sold • Engineering • Sales and Marketing • General and Administrative Years 1 & 2 are predicted on a monthly “burn rate” basis based on actual assumptions Foresight Valuation Group © 2014 39 Years 3 – 5 are driven as a percentage of revenue using industry normalized ratios
  40. 40. Payroll – Organizational Chart CEO CMO Director of Marketing and PR Marketing manager PR manager PR manager Director of Sales and Business Development Director of New Business Ventures Business Development Manager Business Development Manager Sales Representative Sales Representative Chief Content Officer Country Publisher (Mexico) Director of Branded Content Creation Copywriter Copywriter Copywriter Copywriter Copywriter Publisher (U.S.) Director of Content Curation Country Content Curator Content Curator Content Curator Director of Page Design Page Designer Page Designer Foresight Valuation Group © 2014 40 COO Controller Various Consultants Legal Services CTO Project Manager Dev Leader Backend Dev Backend Dev HTML5 Dev HTML5 Dev Mobile Dev) Mobile Dev) Graphic Designer QA Analyst QA Analyst System Admin Director of Operations To be Hired Immediately To be Hired in Year 2 To be Hired in Year 3 Sitting in Mexico Office Outsourced Marketing Sales & Business Development Engineering Publishing Administrative Key:
  41. 41. Communicating With Investors Foresight Valuation Group © 2014
  42. 42. Investor Communications: Top 5 Best Practices 1. Don’t send Excel without “Voiceover” presentation 2. Clearly lay out key metrics on a Dashboard 3. Use Graphics as much as possible 4. Know your numbers inside and out! ¤ Know the micro (user level profitability) ¤ Know the macro (financial projections) 5. Know your investor’s goals and objectives and plan your message accordingly Foresight Valuation Group © 2014 42
  43. 43. Investor Communications: Financial Model Dashboard Foresight Valuation Group © 2014 43
  44. 44. Investor Communications: User Engagement Metrics (SaaS) Foresight Valuation Group © 2014 44
  45. 45. Income Projections: Five Year Forecast Foresight Valuation Group © 2014 45 45 User Base Summary (millions) Year 1 Year 2 Year 3 Year 4 Year 5 Batzu Accounts at End of Year 0.6 2.1 5.8 10.4 16.4 Average Yearly Accounts 0.2 1.3 4.0 8.4 13.7 Batzu Financial Summary ($ Millions) Year1 Year2 Year3 Year4 Year5 Revenue Interstital Ad Revenue per Month 0.5 3.1 9.9 21.5 37.2 Gross Premium Account Revenue -­‐ -­‐ 2.9 6.0 9.9 Branded content channel revenue 0.5 1.0 1.5 2.0 2.5 Gross Revenue 1.0 4.1 14.3 29.5 49.6 Cost of advertising 0.1 0.9 3.0 6.4 11.1 Cost of Premium Revenue -­‐ -­‐ 0.6 1.2 2.0 Net Revenue 0.8 3.2 10.7 21.9 36.4 Costs Research & Development 1.3 1.3 2.1 4.4 7.4 Sales & Marketing 1.0 2.7 5.0 7.4 9.9 Content Publishing 1.5 1.5 1.7 3.5 5.9 General & Administrative 1.1 1.1 1.4 3.0 5.0 Total Operating Costs 4.9 6.6 10.3 18.3 28.2 EBITDA (4.1) (3.4) 0.5 3.6 8.2
  46. 46. Revenue vs. Cost: Five Year Forecast Aggregation 1.0 Breakeven Point 4.1 14.3 60.0 50.0 40.0 30.0 20.0 10.0 Foresight Valuation Group © 2014 46 29.5 49.6 4.9 6.6 10.3 18.3 28.2 - Year1 Year2 Year3 Year4 Year5 Dollars ($MM) Gross Revenue Total Operating Costs
  47. 47. The Startup Valuation Puzzle Foresight Valuation Group © 2014
  48. 48. What’s in a Billion Dollars? Foresight Valuation Group © 2014
  49. 49. High Valuations for Pre-Revenue Startups Raised $50M at ~$2B Valuation (Dec 2013) $123M raised to date 60M installs, 30M active users monthly 16.5M users and 350M photos shared daily $0 Revenues Raised $225M at $3.8B Valuation (Oct 2013) $338M raised to date 70M active users $0 Revenues Foresight Valuation Group © 2014 49
  50. 50. Key Performance Indicators (KPI): The New Valuation Fundamentals KPI = Measurable Indicators of Scalability & Execution ¤ User Engagement - active users ¤ # of Installs ¤ Customer Acquisition Cost (CAC) ¤ Customer Lifetime Value (LTV) ¤ Average Revenue Per User (ARPU) ¤ Customer Attrition (Churn Rate) ¤ Conversion Rate (funnel) Foresight Valuation Group © 2014 50
  51. 51. The “Billion Dollar” Club (Source: WSJ) Foresight Valuation Group © 2014 51
  52. 52. Startup Valuations: The Market Perspective More Exits In 2013 Nest Labs Foresight Valuation Group © 2014 52 User Engagement High Growth Industries More Funding Options • Angels • VCs • Private Equity • Crowdfunding • 230 IPOs; $55B US • 10k M&As deals; $100B US • Active Secondary Market • Healthcare • Internet of Things • Social Media $3.2B Valuation • # Active Users • # Installs/Subscriptions • Conversion Rate • Churn Rate
  53. 53. Startup Valuations: The Investor Perspective Industry Benchmarks Foresight Valuation Group © 2014 53 Company Metrics Investment Objectives External Factors • Long Term Growth • Ecosystem: partnership, channels • Regulation • Litigation • Competitors • Valuation Comps • Funding & Exits • Target ROI • Exit Horizon • Portfolio Companies • Team • Product • Execution (Beta) • Intellectual property
  54. 54. Early Stage Valuation Methods ¨ VC Valuation Approach ¨ Comparable Valuation Approach ¨ Heuristic Approaches (experience based) ¤ Example - Dave McClure’s 5 Points Foresight Valuation Group © 2014 54
  55. 55. VC Valuation Approach: At Exit Point (Year 5) $20 Million $100 Million Foresight Valuation Group © 2014 55 $5 Million $2.5 Million 5X Exit Multiple 70-80% Discount Rate = 20x ROI Revenue in Year 5 Value in Year 5 Value Today 50% future dilution Fully Diluted Value Today
  56. 56. VC Valuation Approach: Sample Revenue Multiples (2012) Foresight Valuation Group © 2014 56 56
  57. 57. VC Valuation Approach: Industry Standard Discount Rates Seed • 80%+ Angel • 50-70% Series A • 40-60% Series B • 30-50% Bridge • 25-35% Sources: How Venture Capital Works , Harvard Business Review A Method for Valuing High-Risk Long-Term Investments, Harvard Business School Foresight Valuation Group © 2014 57
  58. 58. Comparables Valuation Approach: Pre-Money Valuation Range Source: Halo Report 2013 Foresight Valuation Group © 2014 58
  59. 59. Heuristic Approach: The Dave McClure Five “Million Dollar Points” * ¨ Discussed in Q&A by Dave McClure (500 Startups) at a TechCrunch Disrupt Event (2011) ¨ Each “point” worth $1M: 1. Market 2. Product 3. Team 4. Customers 5. Revenue >> Maximum: $5 Million ¨ * Efrat’s 6th point: IP (patents)>> add another $1M Foresight Valuation Group © 2014 59
  60. 60. The Startup Valuation Spectrum Foresight Valuation Group © 2014 60
  61. 61. Startup Valuation Resources ¨ Angel Resource Institute www.angelresourceinstitute.org ¨ Fenwick & West Seed Financing Survey 2012 of Internet/Digital Media and Software Industries ¨ Silicon Valley Bank: The HALO Report 2013 ¨ The Kauffman Foundation: Valuing Pre-Revenue Companies ¨ Center for Venture Research https://paulcollege.unh.edu/cvr Foresight Valuation Group © 2014 61
  62. 62. THANK YOU! Efrat Kasznik President, Foresight Valuation Group ekasznik@foresightvaluation.com www.linkedin.com/in/ekasznik Office: 650-561-3374 www.foresightvaluation.com Presentation available upon request

×