Tetuan Valley Startup School V - Fall 2011 - Week 3

Tetuan alleyStartup School Fall 2011This is the Land of Do-as-you-please-and-take-what-you-want Week 3 Tetuan Valley, October 2011

Sponsors Collaborators

Finance for Entrepreneurs Objec3ve Session 1 •  Concepts Introduce students with tehcnological •  Principals backgrounds to key financial concepts •  Equa;ons that are esen;al at the hour of star;ng a business •  Investors; Objec;ves and restric;ons, 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 projec;ons to investors •  Business Model •  Other tools Dura3on 2 sessions, 4hr 11/3/11

TIME VALUE OF MONEY Eﬀect of compound interest = “A bird in the hand is worth two in the bush” 11/3/11 4

DIVERSIFICATION Market vs. Company Risk “Don´t put all your eggs in one basket” 11/3/11 5

PRICE OF RISK Correla;on of Risk & Return “There´s no such thing as a free lunch” 11/3/11 6

IN GRAPHS Eﬀect of compound Time value of money interest “A bird in the hand is worth two in the bush” Market vs. Company Risk Diversiﬁca3on “Don´t put all your eggs in one basket” Correla;on of risk & return Price of risk “There´s no such thing as a free (Sharpe ra3o) lunch” 11/3/11

STATEMENTS OF ANY COMPANY BALANCE SHEET 11/3/11

RELATIONSHIP BETWEEN ACCOUNTS 11/3/11

Company with increasing proﬁts 11/3/11 10

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 Collec;ons Cobros 200 Pagos Payments Caja 100 Cash balance 0 -‐100 Year 1 Year 2 Year 3 Year 4 11/3/11 11

PROFIT AND LOSS Earnings -‐ COGS Contribu3on Margin -‐ Overhead Expenses EBITDA -‐ Deprecia;ons and amor;za;ons EBIT + Financial result EBT -‐ Taxes Net Result 11/3/11

CASH FLOW STATEMENT Collec;bles -‐ Payments (Direct / Overhead) Opera3ng Cash Capital Subscrip;ons + New Debt -‐ Principal of debt -‐ Dividends Financial Cash -‐ Investments + Temporary ﬁnancial earnings Investment Cash Annual Cash Balance 11/3/11 13

BALANCE SHEET Ac3ve à where is my money Passive à where does it come from Long-‐Term Assets Tangible Equity Social Capital Investments Net Results Deprecia3ons Earnings Long-‐Term Outside Capital Banks Short-‐Term Assets Working Capital Debt Treasury Short-‐Term Inventory Outside Capital Creditors Short-‐term bank VAT 11/3/11

1 M Tshirt+ 94 M EUR 1st liga VS Price is what you pay. Value is what you get Warren Buﬀea 11/3/11

FCF: what is it? l  CAPM: r% = α + βp = Rf +(β*MRP) l  WACC= Ke * (E / (D+E)) + Kd (D / (D+E)) l  FCF = Net income + deprecia;on – changes in working capital – Capital expenditures Earnings Expenses EBITDA Amort. EBIT T in EBIT Amort. NOPLAT Varia3on CAPEX FCF WC 11/3/11 16

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 Funds 11/3/11

HOW PLAYERS INVEST Friends and Venture Funds Origin family 3 1 Family Oﬃce Capital Involvement Own Money Others Money Business Angels Industrialists 2 Financial Purity Source: Perennius

INVESTMENT STAGES 11/3/11

THE CHASM

INVESTMENT CRITERIA Why they Invest What they Measure Decision Time Family, Friends and Personal Confidence Fast Fools Commitment Subsidies and Policy Compliance Slow Public Assistence alignments merits Business Angels Personal affinity Profitability Fast Investment Venture Capitalists Profitability Slow criteria Contribu;on to Industrial Partners Strategic criteria Slow business Source: HighGrowth; Elaboración Okuri Ventures

DESIRED RETURN Target yearly Holding period Investment Entry/exit return (years) death rate mul3plier PE 25%+ 3-‐5 <20% x3,5 VC 25%+ 3-‐5 >60% x10+ BA 15%+ 4-‐7 >80% x20+ 11/3/11

ORIGIN OF MULTIPLIERS-‐LEVERS Shareholder Return PE 25 Investment Mul3plier 20 15 VC 10 5 0 Source: Cifras orientaGvas Sales Margin Debt Arbitration Total11/3/11

CONCLUSION 1 / (1-‐n) Source: http://www.paulgraham.com/equity.html 11/3/11

Tetuan Valley Startup School V - Fall 2011 - Week 3

by Luis Rivera Gurrea-Nozaleda on Nov 02, 2011

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Tetuan Valley Startup School V - Fall 2011 - Week 3 — Presentation Transcript

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