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One Two Four  Entrepreneurial Financial Strategies
 

One Two Four Entrepreneurial Financial Strategies

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Financial strategies for value creation

Financial strategies for value creation

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    One Two Four  Entrepreneurial Financial Strategies One Two Four Entrepreneurial Financial Strategies Presentation Transcript

    • 1
      www.venturebean.com
      Entrepreneurial Financial Strategies
      Anjana Vivek
      www.venturebean.com
      beanie@venturebean.com
    • 2
      www.venturebean.com
      Entrepreneurial Financial Strategies
      Overview
      One..two….four!
    • 3
      www.venturebean.com
      ONE
      Money is only one dimension
    • 4
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      TWO
      Valuation in an entrepreneurial venture is often driven by the following two factors:
      Expected Cash Burn and
      Stake promoters are willing to give away and acceptable to investors
    • 5
      www.venturebean.com
      FOUR
      Four things to watch
      Revenue
      Profits
      Cash flow
      Value
    • 6
      www.venturebean.com
      Entrepreneurial Financial Strategies
      Financial Forecasts
    • 7
      www.venturebean.com
      FINANCIAL FORECAST: Overview
      This is based on and driven by your business model
      It helps to spend significant time thinking of your business strategy and business model
      A business model develops and evolves over time – it is not static
    • 8
      www.venturebean.com
      Business modelThe following are some key areas to be considered while developing a business model and plan- Business / idea- People behind idea/project- Market size expected- Marketing strategy- Competition- Financials- Other information which makes this complete
    • 9
      www.venturebean.com
      Think
      Long term
      Medium term
      Short term
      FINANCIAL FORECAST: Overview
    • 10
      www.venturebean.com
      Balance Sheet
      Profit and Loss Account
      Cash Flow
      NOTE
      If you do not understand the basics of financial statements you may spend time to learn
      Financial statements are communicating tools for business i.e. business language
      You do not need to be an accountant or MBA to understand the basics
      FINANCIAL FORECAST: Overview
    • 11
      www.venturebean.com
      May be
      Monthly
      Quarterly
      Annual
      In the initial years, these may be monthly or quarterly, in the long term, may be annual
      FINANCIAL FORECAST: Overview
    • 12
      www.venturebean.com
      Look at
      Various revenue streams
      Capital expenditure (land, computers, vehicles, furniture etc.)
      Revenue expenditure (Salary, raw material cost, maintenance and repair costs etc.)
      You may be able to convert a capital expenditure into a revenue and vise-versa .. HOW?
      FINANCIAL FORECAST: Overview
    • 13
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      Think through
      Requirements of cash infusions at different stages of the business
      Resource constraints
      Possible valuations at these stages
      FINANCIAL FORECAST: Overview
    • 14
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      FINANCIAL FORECAST: Preparation
      Use tools available – i.e. spreadsheets
      Link and create templates, suitable to your requirement
    • 15
      www.venturebean.com
      FINANCIAL FORECAST: Preparation
      Uncertainties and unknowns can be captured through:
      Scenario and sensitivity analysis
      Templates that allow for different scenarios – i.e. optimistic, pessimistic, expected,
      i.e. by making the changes in the input, the output financials should show the impact
    • 16
      www.venturebean.com
      Entrepreneurial Financial Strategies
      Valuation;
      Negotiations
    • 17
      www.venturebean.com
      VALUATIONValuation is based on:- intangibles and - tangiblesValuation can be computed in multiple ways, the popular methods:- multiples of revenue; profit etc.- multiples of key drivers, eg.user base- cash flow based
    • 18
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      VALUATIONValuation may be driven by - the stake the entrepreneur is willing to give up at a particular stage of investment in the business and - the amount of money required by the business at that stage
    • 19
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      VALUATIONDifferent persons can value the same business differently because they may- use different methods of valuation- use variations in the methods - have different inputs in the methodsThus, valuation perceptions can vary, and we do have situations where there are divergent views on valuation
    • 20
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      VALUATIONDeals can sometimes be structured in such a way that the differences in valuation perception are factored, e.g. linking valuation to performance
    • 21
      www.venturebean.com
      NEGOTIATIONS: Preparation
      It is useful to think through:
      What you want from a proposed transactions
      Transaction/deal maker issues
      Transaction/deal breaker issues
      The point where you may be need to walk away
    • 22
      www.venturebean.com
      NEGOTIATIONS: Preparation
      Put yourself in the shoes of the other party
      Prepare for a due diligence
      Break up the transaction issues into small sub-issues which could be dealt with separately, rather than as a package
      Think through the steps post the transaction
    • 23
      www.venturebean.com
      NEGOTIATIONS: Preparation
      Prepare with a list of possible questions that may be asked and how you will answer them
      Who will negotiate, will it be based on the area, i.e. business issues, legal issues etc. …would these be handled by the subject matter specialists?
      Understand the strengths and gaps of your team members
    • 24
      www.venturebean.com
      Entrepreneurial Financial Strategies
      Transition;
      Roles of stakeholders
    • 25
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      TRANSITIONLook at the stage of your business and plan accordingly Growing to the next level may lead to issues such as- letting go of control- letting go of leadershipAre you ready for this?
    • 26
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      ROLES Plan on roles and responsibilities of team members; stakeholders Plus thinkthrough issues of contribution- in money- in kind- in intangibles
    • 27
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      Entrepreneurial Financial Strategies
      to trigger thinking…
    • 28
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      Entrepreneurial finance
      Entrepreneurship has many definitions, has elements of risk-taking, innovation and pursuit of opportunities relentlessly without regard to resources controlled
      One needs to understanding finance in the context of entrepreneurial firms
    • 29
      www.venturebean.com
      Entrepreneurial finance
      Finance involves
      resource allocation
      cost of capital
      deciding on funding source
      managing working capital needs and ….most importantly
      managing cash
    • 30
      www.venturebean.com
      Entrepreneurial finance
      Evaluation of business opportunities
      from start-up stage to later stage companies
      Understanding the value drivers of the business
      Exploring options to create value,
      for the business
      for the stakeholders
    • 31
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      Entrepreneurial finance
      Needs understanding of
      People
      Business
      Environment
      Deal issues
      Synergies
    • 32
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      Sources of funding
      Funding gap can be met from multiple ways, traditional, new ways of funding and looking at creative options
      Can you think of these and list them
      Each option has its own advantages and disadvantages; can you think of what these could be?
    • 33
      www.venturebean.com
      Sources of funding - I
      Funding gap can be met from
      Equity investment
      Angel investment
      Venture capital investment
      Debt financing
    • 34
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      Sources of funding - II
      Funding gap can also be met from
      Strategic investment
      Increasing revenue by
      changing product mix or
      cash flow timing
      Innovatively sourcing cash
    • 35
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      Some examples
      IT product development company being let down by investor
      Confectionery/chocolate producer needing extra funds to meet expected surge in demand during the Christmas Season
    • 36
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      Utilisation of funds
      Funds raised are invested in
      Available opportunity
      Opportunity that is latent and not obvious
      Creating opportunity
      Based on strategy of entrepreneurs, which may change and evolve over time
      The question to be asked: Is value being created or is there an attempt to create value?
    • 37
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      Entrepreneurial finance and financial strategy in Summary
      Strategic financial planning
      for short term, medium term and long term
      Preparing and implementing
      business plans, financial forecasts
      Review of funding options
      Continuous monitoring and updation
      setting up internal controls, management information systems
      Preparing for alliance partnerships
      including due diligence review, valuation and negotiation, deal terms and conditions
      Value creation
    • 38
      www.venturebean.com
      THANK YOU
      Wishing you all success