Tetuan VAlleyStartup School Spring 2012                            Week4                           #StartSpain           I...
#startspainSponsors   Collaborators
STARTUP FINANCE 101 – Session 3 Objective                                     Session 1                                   ...
TIME VALUE OF MONEY         Effect of compound interest“A bird in the hand is worth two in the bush”28/03/2012            ...
DIVERSIFICATION           Market vs. Company Risk     “Don´t put all your eggs in one basket”28/03/2012                   ...
PRICE OF RISK          Correlation of Risk & Return     “There´s no such thing as a free lunch”28/03/2012                 ...
IN GRAPHS                                  Effect of compoundTime value of money               interest                   ...
STATEMENTS OF ANY COMPANY                                BALANCE SHEET28/03/2012
RELATIONSHIP BETWEEN                   ACCOUNTS28/03/2012
Company with increasing profits28/03/2012                                     10
But if the same company sells with a difference of payments above 5 months                      the company can go bankrup...
PROFIT AND LOSS         Earnings     -   COGS         Contribution Margin     -   Overhead Expenses         EBITDA     -  ...
CASH FLOW STATEMENT       Collectibles   -   Payments (Direct / Overhead)       Operating Cash       Capital Subscriptions...
BALANCE SHEETActive  where is my money                Passive  where does it come from      Long-Term Assets            ...
1 M Tshirt+94 M EUR                      1st liga                   VS Price is what you pay. Value is what you get       ...
FCF: what is it?                              CAPM: r% = α + βp = Rf +(β*MRP)                              WACC= Ke * (E...
CAPMr% =   Rf +(MRP*β)
CAPM       r% =     Rf +(MRP*β)Price of Risk  EQUALS                Market Risk        Non Risky      How much it         ...
WACCWACC= Ke * (%e) + Kd (%d)
WACC  WACC= Ke * (%e) + Kd * (%d)MoneyCOSTS             How much              You use   Equity Costs    Debt Costs
FCF: what is it?                              CAPM: r% = α + βp = Rf +(β*MRP)                              WACC= Ke * (E...
WHO IS WHO                           SICAVs                          Family offices                                      I...
HOW PLAYERS INVEST              Friends                and                                 Venture        Funds Origin    ...
INVESTMENT STAGES28/03/2012
THE CHASM
INVESTMENT CRITERIA                      Why they Invest      What they Measure              Decision TimeFamily, Friends ...
DESIRED RETURN             Target yearly   Holding period   Investment    Entry/exit                return          (years...
ORIGIN OF MULTIPLIERS-LEVERS                                              Shareholder Return               PE             ...
CONCLUSION                          1 / (1-n)Source: http://www.paulgraham.com/equity.html   28/03/2012
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Tetuan Valley Startup School VI (Session 4)

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Tetuan Valley is the first non-for-profit pre-accelerator program in Europe. Our goal is to promote local Entrepreneurship and regional development towards technology.
Twice a year we host a 6 week startup school, with focus on training and working on the implementation of a business idea. We have a portfolio of more than 70 top-notch mentors, participating to give the students a unique and valuable experience. All graduates of the startup school get exclusive access to the Tetuan Valley Alumni Network.
For further info please check tetuanvalley.com

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Tetuan Valley Startup School VI (Session 4)

  1. 1. Tetuan VAlleyStartup School Spring 2012 Week4 #StartSpain In the end, a Sp art ans true st reng is the warrior next t th o him. So give respect and honor t o him, and it will be returned Tetuan Valley, March 2012
  2. 2. #startspainSponsors Collaborators
  3. 3. STARTUP FINANCE 101 – Session 3 Objective Session 1 • Concepts Introduce students with tehcnological • Principals backgrounds to key financial concepts • Equations that are esential at the hour of starting a business • Investors; Objectives and restrictions, stages, “Venture Capital” and Value Levers • Conclusions for the entpreneur Result •Comprehension of key financial indicators Session 2 •Ability to parameterize the models • Business Plan given the face value of a startup and to • Price make financial projections to investors • Business Model • Other tools Duration 2 sessions, 4hr 28/03/2012
  4. 4. TIME VALUE OF MONEY Effect of compound interest“A bird in the hand is worth two in the bush”28/03/2012 = 4
  5. 5. DIVERSIFICATION Market vs. Company Risk “Don´t put all your eggs in one basket”28/03/2012 5
  6. 6. PRICE OF RISK Correlation of Risk & Return “There´s no such thing as a free lunch”28/03/2012 6
  7. 7. IN GRAPHS Effect of compoundTime value of money interest “A bird in the hand is worth two in the bush” Market vs. Company Risk Diversification “Don´t put all your eggs in one basket” Correlation of risk & return Price of risk “There´s no such thing as a free (Sharpe ratio) lunch”28/03/2012
  8. 8. STATEMENTS OF ANY COMPANY BALANCE SHEET28/03/2012
  9. 9. RELATIONSHIP BETWEEN ACCOUNTS28/03/2012
  10. 10. Company with increasing profits28/03/2012 10
  11. 11. But if the same company sells with a difference of payments above 5 months the company can go bankrupt 700 600 500 400 Margin Margen 300 Collections Cobros 200 Pagos Payments Caja Cash balance 100 0 -100 Year 1 Year 2 Year 3 Year 4 28/03/2012 11
  12. 12. PROFIT AND LOSS Earnings - COGS Contribution Margin - Overhead Expenses EBITDA - Depreciations and amortizations EBIT + Financial result EBT - Taxes Net Result3/28/2012
  13. 13. CASH FLOW STATEMENT Collectibles - Payments (Direct / Overhead) Operating Cash Capital Subscriptions + New Debt - Principal of debt - Dividends Financial Cash - Investments + Temporary financial earnings Investment Cash Annual Cash Balance3/28/2012 13
  14. 14. BALANCE SHEETActive  where is my money Passive  where does it come from Long-Term Assets Tangible Equity Social Capital Investments Net Results Depreciations Earnings Long-Term Outside Capital Banks Short-Term Assets Working Capital Debt Treasury Short-Term Outside Inventory Capital Creditors Short-term bank VAT 28/03/2012
  15. 15. 1 M Tshirt+94 M EUR 1st liga VS Price is what you pay. Value is what you get Warren Buffett28/03/2012
  16. 16. 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 expendituresEarnings Expenses EBITDA Amort. EBIT T in EBIT Amort. NOPLAT Variation CAPEX FCF WC28/03/2012 16
  17. 17. CAPMr% = Rf +(MRP*β)
  18. 18. CAPM r% = Rf +(MRP*β)Price of Risk EQUALS Market Risk Non Risky How much it Stuff that matters
  19. 19. WACCWACC= Ke * (%e) + Kd (%d)
  20. 20. WACC WACC= Ke * (%e) + Kd * (%d)MoneyCOSTS How much You use Equity Costs Debt Costs
  21. 21. 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 expendituresEarnings Expenses EBITDA Amort. EBIT T in EBIT Amort. NOPLAT Variation CAPEX FCF WC28/03/2012 21
  22. 22. WHO IS WHO SICAVs Family offices Insurance & Brokers Pension Funds Endowments ¿? Private Banking Hedge Funds Grants and Subsidies Angel Funds CVC Funds of Comercial Funds Banks Investment Banking Sovereign Funds28/03/2012
  23. 23. HOW PLAYERS INVEST Friends and Venture Funds Origin family 3 1 Family Office CapitalInvolvement Own Money Others Money Business Angels Industrialists 2 Financial Purity Source: Perennius
  24. 24. INVESTMENT STAGES28/03/2012
  25. 25. THE CHASM
  26. 26. INVESTMENT CRITERIA Why they Invest What they Measure Decision TimeFamily, Friends and Personal Confidence Fast Fools Commitment Subsidies and Policy Compliance Slow Public Assistence alignments merits Business Angels Personal affinity Profitability Fast InvestmentVenture Capitalists Profitability Slow criteria Contribution toIndustrial Partners Strategic criteria Slow business Source: HighGrowth; Elaboración Okuri Ventures
  27. 27. DESIRED RETURN Target yearly Holding period Investment Entry/exit return (years) death rate multiplier PE 25%+ 3-5 <20% x3,5 VC 25%+ 3-5 >60% x10+ BA 15%+ 4-7 >80% x20+28/03/2012
  28. 28. ORIGIN OF MULTIPLIERS-LEVERS Shareholder Return PE 25 Investment Multiplier 20 15 VC 10 5 0Source: Cifras orientativas Sales Margin Debt Arbitration Total28/03/2012
  29. 29. CONCLUSION 1 / (1-n)Source: http://www.paulgraham.com/equity.html 28/03/2012

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