The document provides an overview of key financial concepts for startups presented by representatives from Silicon Valley Bank. It defines important metrics like revenue, costs of goods sold, expenses, and cash flow. It explains financial statements including the income statement and balance sheet. It recommends that founders become comfortable with basic financial language and tracking their progress towards milestones. It also outlines the additional responsibilities of hired chief financial officers, such as preparing financial projections and statements.

1. presents
Back to Basics: Financial
Fundamentals For Startups

2. Financial Fundamentals: Money 101
March 17th 2014
Smith Anderson
Silicon Valley Bank
(617) 796-6958
Smanderson@svb.com
Twitter: @SmithTown561
Glen Mello
Silicon Valley Bank
(617) 630-4188
gmello@svb.com
!

3. Startup financial
matters are often
confusing…

4. It’s a lot like
learning a language

5. You need to learn
key phrases
yourself...

6. …and rely on translators for the rest.

7. AGENDA
• Key financial metrics
• Financial statements
• When & how to leverage CFOs & others
• Q & A

8. TOP LINE REV / SALES
• Gross Sales or Revenue regardless of cost, liabilities etc..
– Used to discuss growth of the business over time.
– Important, however there is more to the story.

9. Revenue – COGS – expenses
!
• Net Profit (or Net Loss)
– interest,
– taxes,
– Depreciation
– Amortization expenses
!
• EBITDA: Earnings Before Interest,Taxes, Depreciation &
Amortization
BOTTOM LINE

10. BOOKINGS
• The financial value of business that you have under contract
!
• i.e.“we booked a deal with Amazon for $240k over 2 years”
!
• Not a financial statement item—“dashboard” item.
!
• Total ContractValue (TCV) vs. Annual ContractValue (ACV)

11. REVENUE
• The accounting value of a sale during a specific time period
• a.k.a: “rev rec”,“recognized revenue”,“scored revenue”
!
• Sale à revenue when the product has been delivered and
payment terms are defined and agreed to.
• Cash upfront – Deferred Revenue (Liability)
• Bookings > Delivery > Revenue > Collection > A/R

12. COGs
• Cost of good sold
!
• Production costs: direct product costs, hosting, etc.
!
• Execution costs: commissions, revenue share, etc.

13. • Revenue - COGS = Gross Profit (a hard dollar number)
!
!
• Gross Profit / Revenue = Gross Margin (a percentage)
GROSS MARGIN

14. Costs to run your business
• Sales & Marketing expenses
• Research & Development expenses
• General & Administrative expenses
EXPENSES

15. Sources
• Trade Receivables (A/R)
• Deferred Revenue (D/R)
• Debt
• Equity
Uses
• Trade Payables (A/P)
• Salaries/Wages Payable
• Debt
SOURCES & USES OF CASH

16. • Cash divided by cash burn
!
• Cash burn does not necessarily equal EBITDA – depends on
timing of cash receipts vs. bookings vs. revenue
RUNWAY

17. Events that drive value in the company:
!
• Commercial milestones: distribution agreements, customers,
bookings, revenue, etc.
!
• Market milestones: users, working business model, etc.
!
• Technical milestones: proof of concept, working prototype, etc.
MILESTONES

18. • One Page: Communicate progress to key stakeholders
(investors, employees, etc.)
!
• Time-based representation of how company is tracking against
key financial goals (perhaps other time-bound goals as well)
!
• Not a financial statement
DASHBOARDS

19. • Questions to ask yourself:
– What drives value in the business (bookings, gross margin,
technical progress, distribution deals)?
– What resources do you need to drive this value (people,
time, money, etc.)?
!
• Your dashboard will:
– Track the value you are building in the business.
– Track the resources you are consuming
as you build value.
BUILDYOUR DASHBOARD

20. • Income Statement
– A movie
– Tells the financial story of a company over a
span of time
!
• Balance Sheet
– A picture
– Indicates the financial health of a
company at a point in time
FINANCIAL STATEMENTS

21. Over a period of time:
• Revenue (“top line”)
• Minus COGS
• Equals Gross Profit
• Minus Expenses
• Equals EBITDA (“bottom line”)
INCOME STATEMENT

22. Assets
• Cash
• Receivables (A/R)
• Inventory
• Fixed Assets
• Goodwill & Intangible Assets
Liabilities
• Salaries, wages
• Payables (A/P)
• Deferred Revenue (D/R)
• Debt
Assets = Liabilities plus Equity
BALANCE SHEET
Equity
• Paid-in Capital
• Retained Earnings (Loss)

23. • As much as you are comfortable doing…
!
• At a minimum:
– Articulate how value is built in your business in
financial terms.
– Speak to financial resources required to build
value in your business.
– Represent this in terms of time and progress (i.e.
dashboards), using financial language that is
readily understood or simply conveyed
by you.
WHAT SHOULD A FOUNDER DO?

24. • Prepare forward looking financial statements (budgets,
projections, etc.)
!
• Close the books every month and prepare historical financial
statements
!
• Manage billing & collecting
!
• Manage revenue recognition & educate stakeholders (including
you) on complexities
!
• Reality check your expense assumptions.
WHAT SHOULD HIRED CFOs DO?

25. Q & A
• Don’t be SHY

26. WANT TO LEARN HOW TO FILL
YOUR PIGGY BANK?
SVB BOSTON—FREE 1:1 SESSION
http://learn.intelligent.ly/svb-office-hours

27. Financial Fundamentals: Money 101
March 17th 2014
Smith Anderson
Silicon Valley Bank
(617) 796-6958
Smanderson@svb.com
Twitter: @SmithTown561
Glen Mello
Silicon Valley Bank
(617) 630-4188
gmello@svb.com
!

28. presents
INSTRUCTOR
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