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Intro to Financial
     Modeling
       Eastside Incubator
       February 20th, 2013


Martin Zych
Finance Director, Limeade
   @martinzych
what is
financial
modeling?
+

= Financial Modeling?
+

= Financial Modeling?
you wish
almost
A Financial Model answers key questions


 1. How big can this business really get?
 2. How fast can it grow?
 3. What will it take to achieve this?
A Financial Model answers key questions


 1. How big can this business really get?
 2. How fast can it grow?
 3. What will it take to achieve this?

  = How much can this company be worth
 in the future?
Two methodologies
           1st   – Top Down Market


             “If we can get only 1% of a $10 billion
             dollar market = we could make $100
             million dollars a year! Let’s Go!”

             - Startup Financial Modeling Newbies
What investors hear…
            1st   – Top Down Market

              “If we can get only 1% of a super
              competitive, already saturated, $10
              billion dollar market = we could have a
              1 in 100 chance to make $100 million
              dollars a year! Let’s Go!”

              - Startup Financial Modeling Newbies
And most investors will think…
2nd methodology
      Bottoms up modeling



  Inputs     Model    Revenue
Measurable Inputs are actionable.




 When they occur (the model),
  an Output = Revenue occurs
How much does each customer spend?
= ARPU (Average Revenue / Customer)

How will we acquire customers?
At what conversion rates?
How much do we spend to get each customer?
How long will it take?
= CAC (Customer Acquisition Cost)

How many customers try out,
then stop using our product?
= Churn Rate %
                                        Inputs
What is the average life time of a customer?
1/Churn Rate = Avg Customer Life Time (CLT)

How much does it cost to support a customer?
=COGS $ / # of Customers
The Basic Math
[ Remember to define the proper period for each (/mo, qtr, yr) ]
ARPU (Average Revenue / User) = Revenue / # Users
CAC$ = S&M Costs Q(1) / # of New Users Q(1)
CAC (Customer Acquisition Cost) Ratio
=(Gross MarginQ(2)– GMQ(1))*4 / (Sales & Marketing Costs Q(1))
Bad: CAC < 1/3 = Sales & Mktg costs pay for themselves in over 3 years
Good: CAC > 1 = Sales & Mktg costs pay for themselves within a year
Churn Rate
= Σ(Users who stop using service in period) / Σ(Total Users @ start of
period)
Avg Customer Life Time (CLT) = 1/Churn Rate
Customer Lifetime Value =
    [(ARPU-COGS/User) x CLT] – CAC) = Customer Lifetime Value

    If CLTV > 0 means you have a potentially profitable business.

                                                                           Yippee!
Note: with more info, or on more mature companies we’d use Contribution Margins and NPV
More Math
Growth Rate
   # of Users P(1) - # of Users P(0)
r=
          # of Users P(0)

Estimated Users in N periods = Users x (1+r)^n
Brain Teaser:
How do you quantify an avg monthly growth
rate into how many weeks to double user base?
More Math
Growth Rate
   # of Users P(1) - # of Users P(0)
r=
          # of Users P(0)

Estimated Users in N periods = Users x (1+r)^n
Brain Teaser:
How do you quantify an avg monthly growth
rate into how many weeks to double user base?
                              log(2)
 Est. Weeks to Double = 52 x
                             log(1+r)
Test these basic
metrics on a
small scale as
early as possible.
Then infer what your model can do
    once funded and at scale
Now how do
I model this?
Standards / Inputs
 • Use Consistent Coding Standards




 • Never hardcode variables
 • Focus on format & structure first. Inputs can come later.
 • Start model off with standard inputs
    – Company Name, Departments (if applicable)
    – Make all data flow throughout the model
Common Excel Functions you should learn
• Logical functions:
    – IF(), AND(), OR(), SUMIF()
• Arrays {}
    • {Transpose()}
•   Offset()
•   Countif()
•   Vlookup(), Hlookup(), lookup()
•   Index(), Match()
•   Financial:
    – PMT(), PPMT(), IPMT()
• Date Functions:
    – EOMONTH(), EDATE(), Day(), Month(), Year()
                                                   25
Fire up Excel and create….
 individual tabs for:
 • Inputs
 • Market (today’s example)
 • Revenue (today’s example)
 • Staffing
 • Costs
 • CapEx
 • Debt
 • SumFS [Summary Financials]
 • Charts [& Metrics]
Inputs / Processing
• The Inputs tab takes all
  sections + adds
  headcount driven
  expenses and creates
  one place to process the
  outputs of P&L, Cash
  Flows, Balance Sheet
Market
• Clearly define:
   – What you’re producing and selling   The Marketing Funnel
   – Who your customer is                      Social Media
   – How you’re going to grow your                 PR
     customer base (mktg funnel) or
     product production

• Some Revenue Model Calculation
  Methods:                                         Leads
   –   Referral / Viral Growth
   –   Biz Dev / Sales Deals
   –   Marketing Spend (CPA model)
   –   Subscription Model                      Opportunities
   –   Store Counts
   –   Production driven inputs
       (Manufacturing)
                                             New Customers!
Demo Company
• SaaS B2C Business
• Acquires customers via
  – SEM
  – Affiliates
• Customers pay via
  – Subscription model
• 1%/mo churn
  (SaaS industry standard)
Excel Model Tab

Create calculations for:
• SEM
• Affiliate sign ups
  – New users from affiliates
• Churn
  – 1%/mo


Result = # of Customers!
Revenue
 • Once we know how many customers we have
   at any given time or products we’ll
   produce, we can calculate:
   – Product Mix / Parallel products
   – Average $ per Transaction
   – Average # of Transactions/mo
   – Renewal rates
   – Traffic driven revenue (i.e. advertising revenue)
   and much more…
                                                         31
Excel Revenue tab
   Subscription Model


      Basic Plan          Pro Plan
    •$10/mo             •$50/mo
    • Core product      •Core +
    •90% purchase       •Premium
                         Analytics
                        •10% purchase
Costs – we won’t model in detail but:
• Once Revenue section is built out:
  – We understand the rough size/scale
    of the business revenue-wise
  – With customer or user counts, we
    can put together COGS for
    Production/Hosting
  – Can infer staffing needs through
    sanity check of X Customers = Y
    Service reps/QA/Account mngrs...
  – Add outsourced costs / special
    projects in the plan
    (contractors, engineering
    pushes, PR pushes &
    campaigns, etc.)
  – Set expenses driven per headcount
    and/or per dept.
Costs
        • Common Dept Cost Categories:
          – Staffing
             • Salaries
             • Payroll Taxes & Benefits
             • Other Staffing
          – Travel
          – Facilities
          – Equipment
             • Equipment Depreciation Exp
             • One Time Non-Capital Exp
             • Equipment Employee Exp
          – Outside Support
          – Marketing
HOMEWORK - Excel Costs tab
CREATE…
• Staffing Expenses for:
  – Staff of:
     • CEO, Marketing Manager, Dev, and a few blanks TBH
  – Payroll taxes (Social Sec, Medicare, ESD, etc)
  – Benefits

• Outside support for
  – Legal, Admin, Engineering Contractor
CapEx
We’re not going to model CapEx today but…

• Capital Expenditures are driven by:
  – Large one time purchases (facilities, equipment etc) or
    per New Hire (computer, software, office
    equipment, licensing, etc).

  – Create a section with a cap limit & schedules.
     • Anything under this is immediately expensed. (Usually set
       between $500-1500. Ask your CPA.)
     • Anything over this limit is depreciated (MACRS, Straight-line
       etc.) Depends on standards you set for your company.
                                                                       36
Debt
We’re not going to model a debt tab today but…

• Debt financing schedules
  – Contain calcs to figure out loan/note repayments
  – Interest Expense for Pro-Formas
  – Commonly used excel formulas of:
     • PMT(), PPMT(), IPMT()
     Use these together and you can easily figure out principal vs
       interest paid over time on debt.



                                                                 37
HOMEWORK - Excel Charts tab

     Bring Data In            Calculate

  • Revenue              • ARPU
  • Expenses             • CAC
  • Net Income           • CLT
  • Customers            • CLTV
  • Cash
Once done, the model provides:
•   Pro-Forma Income Statements
•   Pro-Forma Balance Sheets
•   Pro-Forma Cash Flows
•   Business Charts & Metrics




                                  39
Company Name
                                   PRO-FORMA INCOME STATEMENTS ($000's)
                                        FY Ended    FY Ended      FY Ended     FY Ended     FY Ended     FY Ended
           ($1,000s)                     Dec-07      Dec-08        Dec-09       Dec-10       Dec-11       Dec-12
REVENUE
     By Revenue Type
       Ad revenue --w eb (Total)              $1         $301        $2,341       $4,510       $5,621       $6,635
       Site Skinning Sales $                  $3          $30          $553       $1,147       $1,538       $1,923
       Content Rev                            $0         $178        $6,897      $12,683      $18,885      $20,729
       Featured Fyreball Rev                  $0          $38          $370       $1,233       $2,750       $5,820
Total Revenue                                 $3         $547       $10,160      $19,572      $28,794      $35,107

COST OF GOODS SOLD
      Content Costs                           $0           $0            $0           $0           $0           $0
      Bandw idth Costs Monthly                $6          $24           $36          $60          $96         $180
      Ad serving cost - Total $               $0           $3           $18          $36          $44          $52
       Operations                             $0         $178          $511         $811         $988       $1,407
Total Cost of Goods Sold                      $6         $205          $566         $907       $1,128       $1,639

GROSS MARGIN                                 ($3)        $342        $9,595      $18,666      $27,666      $33,468
     % of Revenue                          -101%          63%           94%          95%          96%          95%

OPERATING EXPENSES
       Sales                                  $0         $171          $652         $952       $2,430       $3,951
       % of Revenue                           0%          31%            6%           5%           8%          11%
       Marketing                             $16         $286          $755       $1,101       $2,435       $4,000
       % of Revenue                        507%           52%            7%           6%           8%          11%
       Development                         $272        $1,563        $2,212       $3,070       $5,229       $7,544
       % of Revenue                       8607%          286%           22%          16%          18%          21%
       Admin                                 $83         $585        $1,060       $1,699       $2,385       $2,976
       % of Revenue                        2629%         107%           10%           9%           8%           8%
Total Operating Expenses                    $371       $2,605        $4,679       $6,822      $12,479      $18,472
       % of Revenue                       11743%         476%           46%          35%          43%          53%

Incom e Before Int & Taxes                 ($374)      ($2,263)      $4,916      $11,844      $15,187      $14,996
       % of Revenue                      -11845%         -413%          48%          61%          53%          43%

       Interest Income                        $4          $64           $70         $346         $782       $1,249
       Other Expense                         ($2)         ($6)         ($54)       ($102)       ($148)       ($180)
       Other Taxes                           ($0)         ($8)        ($152)       ($294)       ($432)       ($527)

Incom e Before Taxes                       ($371)      ($2,213)      $4,779      $11,795      $15,389      $15,539
       Income Taxes                           $0            $0         $768       $4,128       $5,386       $5,439

NET INCOME                                 ($371)      ($2,213)      $4,011       $7,667      $10,003      $10,100
       % of Revenue                      -11763%         -404%          39%          39%          35%          29%
Company Name
                                     PRO-FORMA BALANCE SHEETS ($000's)
                                         FY Ended    FY Ended      FY Ended     FY Ended     FY Ended     FY Ended
                                          Dec-07      Dec-08        Dec-09       Dec-10       Dec-11       Dec-12
ASSETS
Current Assets
      Cash                                  $170          $470        $4,047      $11,396      $21,117      $31,092
      Receivables                             $0           $77        $1,109       $1,764       $2,523       $3,098
      Other Current Assets                    $0            $0            $0           $0           $0           $0
      Total Current Assets                  $170          $548        $5,155      $13,160      $23,640      $34,190

Other Assets
      Property, Plant & Equipment            $13           $67           $84         $117         $202         $229
      Accumulated Depreciation               ($1)         ($14)         ($39)        ($71)       ($112)       ($161)
      Other Noncurrent Assets                 $0            $0            $0           $0           $0           $0
      Total Other Assets                     $11           $53           $45          $46          $91          $67

TOTAL ASSETS                                $182          $600        $5,201      $13,207      $23,731      $34,257

LIABILITIES
Current Liabilities
       Credit Line                            $0            $0            $0           $0           $0           $0
       Accounts Payable                      $17           $29           $38          $94         $268         $395
       Accrued Expenses                       $0            $0            $0           $0           $0           $0
       Salaries Payable                      $23          $122          $164         $244         $459         $493
       Payroll Taxes Payable                  $5           $24           $33          $49          $92          $99
       Income Tax Payable                     $0            $0          $530         $718         $808       $1,065
       Deferred Revenue                       $0            $0            $0           $0           $0           $0
       Other Current Liabilities              $0            $0            $0           $0           $0           $0
       Total Current Liabilities             $44          $176          $765       $1,105       $1,626       $2,052

Long Term Liabilities
      Capital Lease                            $0           $0            $0           $0           $0           $0
      Note Payable                             $0           $0            $0           $0           $0           $0
      Other Noncurrent Liabilities             $0           $0            $0           $0           $0           $0
      Total Long Term Liabilities              $0           $0            $0           $0           $0           $0

TOTAL LIABILITIES                            $44          $176          $765       $1,105       $1,626       $2,052

Stockholders' Equity
      Preferred Stock                        $410        $2,910       $2,910       $2,910       $2,910       $2,910
      Common Stock                             $0            $0           $0           $0           $0           $0
      Retained Earnings                        $0            $0           $0           $0           $0           $0
      YTD Profit (loss)                     ($273)      ($2,485)      $1,525       $9,192      $19,195      $29,295
      Total Stockholders' Equity             $137          $425       $4,435      $12,102      $22,105      $32,205

LIABILITIES & EQUITY                        $182          $600        $5,201      $13,207      $23,731      $34,257
Company Name
                 PRO-FORMA STATEMENT OF SOURCES AND USES ($000's)
                                  FY Ended    FY Ended      FY Ended    FY Ended    FY Ended    FY Ended
                                   Dec-07      Dec-08        Dec-09      Dec-10      Dec-11      Dec-12

BEGINNING CASH                          $0         $170          $470      $4,047     $11,396     $21,117

SOURCES OF CASH
   Net Income                        ($273)      ($2,213)      $4,011      $7,667     $10,003     $10,100
   Add Depreciation and amort.          $1           $13          $24         $32         $41         $50
   Issuance of Stock                  $410        $2,500           $0          $0          $0          $0
   Issuance of Debt                     $0            $0           $0          $0          $0          $0

Plus Changes in:
   Accounts Payable                   $17           $12            $9         $56       $174         $127
   Accrued Expenses                    $0            $0            $0          $0          $0          $0
   Salaries Payable                   $23           $99           $42         $80       $215          $35
   Payroll Taxes Payable               $5           $20            $8         $16         $43          $7
   Income Taxes Payable                $0            $0         $530         $188         $89        $257
   Deferred Revenue                    $0            $0            $0          $0          $0          $0
   Other Current Liabilities           $0            $0            $0          $0          $0          $0
   Other Noncurrent Liabilities        $0            $0            $0          $0          $0          $0
   Capital Lease Obligations           $0            $0            $0          $0          $0          $0
   Notes Payable                       $0            $0            $0          $0          $0          $0
Total Sources of Cash                $183          $432        $4,625      $8,038     $10,565     $10,576

Uses of Cash
Less Changes in:
   Receivables                         ($0)         $77        $1,031        $656        $759        $575
   Inventory                            $0           $0            $0          $0          $0          $0
   Other Current Assets                 $0           $0            $0          $0          $0          $0
   Other Noncurrent Assets              $0           $0            $0          $0          $0          $0
   Property and Equipment             ($13)         $55           $17         $33         $85         $26
Total Uses of Cash                    ($13)        $132        $1,048        $689        $844        $601

CHANGES IN CASH                      $170          $300        $3,576      $7,349      $9,721      $9,975

ENDING CASH                          $170          $470        $4,047     $11,396     $21,117     $31,092
Summarized in Charts such as:
                        Company
                  2010-11 Rev/GM/NIBT
           $4
                                        Rev
                                        GM
           $3                           NIBT
                                        Cash

           $2
Millions




           $1



           $0



           ($1)
Business Metrics & Targets




                             44
Business Metrics & Targets




                             45
That’s just the tip of the iceberg
That’s just the tip of the iceberg


Adding in department level spending
Accrual basis AR/AP
Depreciation & Amortization
Taxes & NOL
Inflation adjustments
Milestone & Fundraising timing
SUPER DEEP
DCF: Discounted Cash Flow Analysis
Current and Future Valuations
ROI: Return on Investment
And more….
Questions




       I’d like to know…. ?




  contact
                              ?   Ask Me Now




     http://about.me/martinzych
     martin.zych@limeade.com
     @martinzych                               48
Questions




  contact
     http://about.me/martinzych
     martin.zych@limeade.com
     @martinzych                  49

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Intro to Financial Modeling - EI

  • 1. Intro to Financial Modeling Eastside Incubator February 20th, 2013 Martin Zych Finance Director, Limeade @martinzych
  • 6.
  • 8. A Financial Model answers key questions 1. How big can this business really get? 2. How fast can it grow? 3. What will it take to achieve this?
  • 9. A Financial Model answers key questions 1. How big can this business really get? 2. How fast can it grow? 3. What will it take to achieve this? = How much can this company be worth in the future?
  • 10. Two methodologies 1st – Top Down Market “If we can get only 1% of a $10 billion dollar market = we could make $100 million dollars a year! Let’s Go!” - Startup Financial Modeling Newbies
  • 11. What investors hear… 1st – Top Down Market “If we can get only 1% of a super competitive, already saturated, $10 billion dollar market = we could have a 1 in 100 chance to make $100 million dollars a year! Let’s Go!” - Startup Financial Modeling Newbies
  • 12. And most investors will think…
  • 13.
  • 14. 2nd methodology Bottoms up modeling Inputs Model Revenue
  • 15. Measurable Inputs are actionable. When they occur (the model), an Output = Revenue occurs
  • 16. How much does each customer spend? = ARPU (Average Revenue / Customer) How will we acquire customers? At what conversion rates? How much do we spend to get each customer? How long will it take? = CAC (Customer Acquisition Cost) How many customers try out, then stop using our product? = Churn Rate % Inputs What is the average life time of a customer? 1/Churn Rate = Avg Customer Life Time (CLT) How much does it cost to support a customer? =COGS $ / # of Customers
  • 17. The Basic Math [ Remember to define the proper period for each (/mo, qtr, yr) ] ARPU (Average Revenue / User) = Revenue / # Users CAC$ = S&M Costs Q(1) / # of New Users Q(1) CAC (Customer Acquisition Cost) Ratio =(Gross MarginQ(2)– GMQ(1))*4 / (Sales & Marketing Costs Q(1)) Bad: CAC < 1/3 = Sales & Mktg costs pay for themselves in over 3 years Good: CAC > 1 = Sales & Mktg costs pay for themselves within a year Churn Rate = Σ(Users who stop using service in period) / Σ(Total Users @ start of period) Avg Customer Life Time (CLT) = 1/Churn Rate
  • 18. Customer Lifetime Value = [(ARPU-COGS/User) x CLT] – CAC) = Customer Lifetime Value If CLTV > 0 means you have a potentially profitable business. Yippee! Note: with more info, or on more mature companies we’d use Contribution Margins and NPV
  • 19. More Math Growth Rate # of Users P(1) - # of Users P(0) r= # of Users P(0) Estimated Users in N periods = Users x (1+r)^n Brain Teaser: How do you quantify an avg monthly growth rate into how many weeks to double user base?
  • 20. More Math Growth Rate # of Users P(1) - # of Users P(0) r= # of Users P(0) Estimated Users in N periods = Users x (1+r)^n Brain Teaser: How do you quantify an avg monthly growth rate into how many weeks to double user base? log(2) Est. Weeks to Double = 52 x log(1+r)
  • 21. Test these basic metrics on a small scale as early as possible.
  • 22. Then infer what your model can do once funded and at scale
  • 23. Now how do I model this?
  • 24. Standards / Inputs • Use Consistent Coding Standards • Never hardcode variables • Focus on format & structure first. Inputs can come later. • Start model off with standard inputs – Company Name, Departments (if applicable) – Make all data flow throughout the model
  • 25. Common Excel Functions you should learn • Logical functions: – IF(), AND(), OR(), SUMIF() • Arrays {} • {Transpose()} • Offset() • Countif() • Vlookup(), Hlookup(), lookup() • Index(), Match() • Financial: – PMT(), PPMT(), IPMT() • Date Functions: – EOMONTH(), EDATE(), Day(), Month(), Year() 25
  • 26. Fire up Excel and create…. individual tabs for: • Inputs • Market (today’s example) • Revenue (today’s example) • Staffing • Costs • CapEx • Debt • SumFS [Summary Financials] • Charts [& Metrics]
  • 27. Inputs / Processing • The Inputs tab takes all sections + adds headcount driven expenses and creates one place to process the outputs of P&L, Cash Flows, Balance Sheet
  • 28. Market • Clearly define: – What you’re producing and selling The Marketing Funnel – Who your customer is Social Media – How you’re going to grow your PR customer base (mktg funnel) or product production • Some Revenue Model Calculation Methods: Leads – Referral / Viral Growth – Biz Dev / Sales Deals – Marketing Spend (CPA model) – Subscription Model Opportunities – Store Counts – Production driven inputs (Manufacturing) New Customers!
  • 29. Demo Company • SaaS B2C Business • Acquires customers via – SEM – Affiliates • Customers pay via – Subscription model • 1%/mo churn (SaaS industry standard)
  • 30. Excel Model Tab Create calculations for: • SEM • Affiliate sign ups – New users from affiliates • Churn – 1%/mo Result = # of Customers!
  • 31. Revenue • Once we know how many customers we have at any given time or products we’ll produce, we can calculate: – Product Mix / Parallel products – Average $ per Transaction – Average # of Transactions/mo – Renewal rates – Traffic driven revenue (i.e. advertising revenue) and much more… 31
  • 32. Excel Revenue tab Subscription Model Basic Plan Pro Plan •$10/mo •$50/mo • Core product •Core + •90% purchase •Premium Analytics •10% purchase
  • 33. Costs – we won’t model in detail but: • Once Revenue section is built out: – We understand the rough size/scale of the business revenue-wise – With customer or user counts, we can put together COGS for Production/Hosting – Can infer staffing needs through sanity check of X Customers = Y Service reps/QA/Account mngrs... – Add outsourced costs / special projects in the plan (contractors, engineering pushes, PR pushes & campaigns, etc.) – Set expenses driven per headcount and/or per dept.
  • 34. Costs • Common Dept Cost Categories: – Staffing • Salaries • Payroll Taxes & Benefits • Other Staffing – Travel – Facilities – Equipment • Equipment Depreciation Exp • One Time Non-Capital Exp • Equipment Employee Exp – Outside Support – Marketing
  • 35. HOMEWORK - Excel Costs tab CREATE… • Staffing Expenses for: – Staff of: • CEO, Marketing Manager, Dev, and a few blanks TBH – Payroll taxes (Social Sec, Medicare, ESD, etc) – Benefits • Outside support for – Legal, Admin, Engineering Contractor
  • 36. CapEx We’re not going to model CapEx today but… • Capital Expenditures are driven by: – Large one time purchases (facilities, equipment etc) or per New Hire (computer, software, office equipment, licensing, etc). – Create a section with a cap limit & schedules. • Anything under this is immediately expensed. (Usually set between $500-1500. Ask your CPA.) • Anything over this limit is depreciated (MACRS, Straight-line etc.) Depends on standards you set for your company. 36
  • 37. Debt We’re not going to model a debt tab today but… • Debt financing schedules – Contain calcs to figure out loan/note repayments – Interest Expense for Pro-Formas – Commonly used excel formulas of: • PMT(), PPMT(), IPMT() Use these together and you can easily figure out principal vs interest paid over time on debt. 37
  • 38. HOMEWORK - Excel Charts tab Bring Data In Calculate • Revenue • ARPU • Expenses • CAC • Net Income • CLT • Customers • CLTV • Cash
  • 39. Once done, the model provides: • Pro-Forma Income Statements • Pro-Forma Balance Sheets • Pro-Forma Cash Flows • Business Charts & Metrics 39
  • 40. Company Name PRO-FORMA INCOME STATEMENTS ($000's) FY Ended FY Ended FY Ended FY Ended FY Ended FY Ended ($1,000s) Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 REVENUE By Revenue Type Ad revenue --w eb (Total) $1 $301 $2,341 $4,510 $5,621 $6,635 Site Skinning Sales $ $3 $30 $553 $1,147 $1,538 $1,923 Content Rev $0 $178 $6,897 $12,683 $18,885 $20,729 Featured Fyreball Rev $0 $38 $370 $1,233 $2,750 $5,820 Total Revenue $3 $547 $10,160 $19,572 $28,794 $35,107 COST OF GOODS SOLD Content Costs $0 $0 $0 $0 $0 $0 Bandw idth Costs Monthly $6 $24 $36 $60 $96 $180 Ad serving cost - Total $ $0 $3 $18 $36 $44 $52 Operations $0 $178 $511 $811 $988 $1,407 Total Cost of Goods Sold $6 $205 $566 $907 $1,128 $1,639 GROSS MARGIN ($3) $342 $9,595 $18,666 $27,666 $33,468 % of Revenue -101% 63% 94% 95% 96% 95% OPERATING EXPENSES Sales $0 $171 $652 $952 $2,430 $3,951 % of Revenue 0% 31% 6% 5% 8% 11% Marketing $16 $286 $755 $1,101 $2,435 $4,000 % of Revenue 507% 52% 7% 6% 8% 11% Development $272 $1,563 $2,212 $3,070 $5,229 $7,544 % of Revenue 8607% 286% 22% 16% 18% 21% Admin $83 $585 $1,060 $1,699 $2,385 $2,976 % of Revenue 2629% 107% 10% 9% 8% 8% Total Operating Expenses $371 $2,605 $4,679 $6,822 $12,479 $18,472 % of Revenue 11743% 476% 46% 35% 43% 53% Incom e Before Int & Taxes ($374) ($2,263) $4,916 $11,844 $15,187 $14,996 % of Revenue -11845% -413% 48% 61% 53% 43% Interest Income $4 $64 $70 $346 $782 $1,249 Other Expense ($2) ($6) ($54) ($102) ($148) ($180) Other Taxes ($0) ($8) ($152) ($294) ($432) ($527) Incom e Before Taxes ($371) ($2,213) $4,779 $11,795 $15,389 $15,539 Income Taxes $0 $0 $768 $4,128 $5,386 $5,439 NET INCOME ($371) ($2,213) $4,011 $7,667 $10,003 $10,100 % of Revenue -11763% -404% 39% 39% 35% 29%
  • 41. Company Name PRO-FORMA BALANCE SHEETS ($000's) FY Ended FY Ended FY Ended FY Ended FY Ended FY Ended Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 ASSETS Current Assets Cash $170 $470 $4,047 $11,396 $21,117 $31,092 Receivables $0 $77 $1,109 $1,764 $2,523 $3,098 Other Current Assets $0 $0 $0 $0 $0 $0 Total Current Assets $170 $548 $5,155 $13,160 $23,640 $34,190 Other Assets Property, Plant & Equipment $13 $67 $84 $117 $202 $229 Accumulated Depreciation ($1) ($14) ($39) ($71) ($112) ($161) Other Noncurrent Assets $0 $0 $0 $0 $0 $0 Total Other Assets $11 $53 $45 $46 $91 $67 TOTAL ASSETS $182 $600 $5,201 $13,207 $23,731 $34,257 LIABILITIES Current Liabilities Credit Line $0 $0 $0 $0 $0 $0 Accounts Payable $17 $29 $38 $94 $268 $395 Accrued Expenses $0 $0 $0 $0 $0 $0 Salaries Payable $23 $122 $164 $244 $459 $493 Payroll Taxes Payable $5 $24 $33 $49 $92 $99 Income Tax Payable $0 $0 $530 $718 $808 $1,065 Deferred Revenue $0 $0 $0 $0 $0 $0 Other Current Liabilities $0 $0 $0 $0 $0 $0 Total Current Liabilities $44 $176 $765 $1,105 $1,626 $2,052 Long Term Liabilities Capital Lease $0 $0 $0 $0 $0 $0 Note Payable $0 $0 $0 $0 $0 $0 Other Noncurrent Liabilities $0 $0 $0 $0 $0 $0 Total Long Term Liabilities $0 $0 $0 $0 $0 $0 TOTAL LIABILITIES $44 $176 $765 $1,105 $1,626 $2,052 Stockholders' Equity Preferred Stock $410 $2,910 $2,910 $2,910 $2,910 $2,910 Common Stock $0 $0 $0 $0 $0 $0 Retained Earnings $0 $0 $0 $0 $0 $0 YTD Profit (loss) ($273) ($2,485) $1,525 $9,192 $19,195 $29,295 Total Stockholders' Equity $137 $425 $4,435 $12,102 $22,105 $32,205 LIABILITIES & EQUITY $182 $600 $5,201 $13,207 $23,731 $34,257
  • 42. Company Name PRO-FORMA STATEMENT OF SOURCES AND USES ($000's) FY Ended FY Ended FY Ended FY Ended FY Ended FY Ended Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 BEGINNING CASH $0 $170 $470 $4,047 $11,396 $21,117 SOURCES OF CASH Net Income ($273) ($2,213) $4,011 $7,667 $10,003 $10,100 Add Depreciation and amort. $1 $13 $24 $32 $41 $50 Issuance of Stock $410 $2,500 $0 $0 $0 $0 Issuance of Debt $0 $0 $0 $0 $0 $0 Plus Changes in: Accounts Payable $17 $12 $9 $56 $174 $127 Accrued Expenses $0 $0 $0 $0 $0 $0 Salaries Payable $23 $99 $42 $80 $215 $35 Payroll Taxes Payable $5 $20 $8 $16 $43 $7 Income Taxes Payable $0 $0 $530 $188 $89 $257 Deferred Revenue $0 $0 $0 $0 $0 $0 Other Current Liabilities $0 $0 $0 $0 $0 $0 Other Noncurrent Liabilities $0 $0 $0 $0 $0 $0 Capital Lease Obligations $0 $0 $0 $0 $0 $0 Notes Payable $0 $0 $0 $0 $0 $0 Total Sources of Cash $183 $432 $4,625 $8,038 $10,565 $10,576 Uses of Cash Less Changes in: Receivables ($0) $77 $1,031 $656 $759 $575 Inventory $0 $0 $0 $0 $0 $0 Other Current Assets $0 $0 $0 $0 $0 $0 Other Noncurrent Assets $0 $0 $0 $0 $0 $0 Property and Equipment ($13) $55 $17 $33 $85 $26 Total Uses of Cash ($13) $132 $1,048 $689 $844 $601 CHANGES IN CASH $170 $300 $3,576 $7,349 $9,721 $9,975 ENDING CASH $170 $470 $4,047 $11,396 $21,117 $31,092
  • 43. Summarized in Charts such as: Company 2010-11 Rev/GM/NIBT $4 Rev GM $3 NIBT Cash $2 Millions $1 $0 ($1)
  • 44. Business Metrics & Targets 44
  • 45. Business Metrics & Targets 45
  • 46. That’s just the tip of the iceberg
  • 47. That’s just the tip of the iceberg Adding in department level spending Accrual basis AR/AP Depreciation & Amortization Taxes & NOL Inflation adjustments Milestone & Fundraising timing SUPER DEEP DCF: Discounted Cash Flow Analysis Current and Future Valuations ROI: Return on Investment And more….
  • 48. Questions I’d like to know…. ? contact ? Ask Me Now http://about.me/martinzych martin.zych@limeade.com @martinzych 48
  • 49. Questions contact http://about.me/martinzych martin.zych@limeade.com @martinzych 49

Editor's Notes

  1. How big can this business get? Is this a $10M run rate business or a $100M business at maturityHow fast can it grow? What are our key KPI’s in the business, the things that show leverage = more $ = exponential growthWhat will it take to achieve this? How much $ do I have to raise?
  2. How big can this business get? Is this a $10M run rate business or a $100M business at maturityHow fast can it grow? What are our key KPI’s in the business, the things that show leverage = more $ = exponential growthWhat will it take to achieve this? How much $ do I have to raise?
  3. Company wide inputs (depts, financing activities, HC/dept driven expenses)RevenueCOGSOperating ExpensesTaxesNet IncomeCash Flow ProcessingBalance Sheet ProcessingAR/AP collectionsSchedules for Tax Payments
  4. The model will identify key business drivers &amp; metrics.Common Metrics &amp; Reports:Revenue / Net Income / Gross MarginRevenue by Type / Market# of Users / Customers / Store Count etcAvg. Purchase PriceHeadcount / Staffing CostsMarketing Spend / User or CustomerRevenue per Employee+ any industry specific metrics