fall 2012 week 3 fin 101

Tetuan Valley

Tetuan Valley, OCTOber 2012

Startup School 7: Fall2012

WEEK 3

“More human than human is our motto”

#startspain

STARTUP FINANCE 101 – Session 3

24/10/2012

Objective

Introduce students with tehcnological backgrounds to key financial concepts that are esential at the hour of starting a business

Result

•Comprehension of key financial indicators •Ability to parameterize the models given the face value of a startup and to make financial projections to investors

Duration

2 sessions, 4hr

Session 1 • Concepts • Principals • Equations • Investors; Objectives and restrictions, stages, “Venture Capital” and

Value Levers • Conclusions for the entpreneur

Session 2 • Business Plan • Price • Business Model • Other tools

disclaimer

Katelyn made these slides

LlUIS COBI AND NAST

are not responsible

for her

tastelessness

PLEASE MAKE all COMPLAINTS

addressed TO HER

24/10/2012 5

TIME VALUE OF MONEY Effect of compound interest

“A bird in the hand is worth two in the bush”

=

Effect of compound interest

“A bird in the hand is worth two in the bush”

Time value of money

24/10/2012 7

PRICE OF RISK Correlation of Risk & Return

“There´s no such thing as a free lunch”

Correlation of risk & return

“There´s no such thing as a free lunch”

Price of risk (Sharpe ratio)

24/10/2012 9

RISK =

COMPANY MARKET

24/10/2012 10

MARKET RISK

24/10/2012 11

COMPANY RISK

24/10/2012 12

DIVERSIFICATION Market vs. Company Risk

“Don´t put all your eggs in one basket”

Market vs. Company Risk

“Don´t put all your eggs in one basket”

Diversification

24/10/2012

BALANCE SHEET

STATEMENTS OF ANY COMPANY

24/10/2012

RELATIONSHIP BETWEEN ACCOUNTS

10/24/2012

PROFIT AND LOSS

Earnings

COGS

Overhead Expenses

EBITDA

Depreciations and amortizations

Contribution Margin

EBIT

Financial result

EBT

Taxes

Net Result

+

-

-

-

-

10/24/2012

EARNINGS

How many things you sell

At what price

X

10/24/2012

PROFIT AND LOSS

Earnings

COGS

Overhead Expenses

EBITDA


Contribution Margin

EBIT

Financial result

EBT

Taxes

Net Result

+

-

-

-

-

10/24/2012

COST OF GOODS SOLD

How many things you sell

How much it costs to make them

X

10/24/2012

PROFIT AND LOSS

Earnings

COGS

Overhead Expenses

EBITDA


Contribution Margin

EBIT

Financial result

EBT

Taxes

Net Result

+

-

-

-

-

10/24/2012

OVERHEAD = FIXED COSTS

10/24/2012


Earnings

COGS

Overhead Expenses

EBITDA


Contribution Margin

EBIT

Financial result

EBT

Taxes

Net Result

+

-

-

-

-

We buy a machine in year 1 for 6k We buy a machine in year 1 for 6k

We buy a machine in year 1 for 6k

10.000

5.000

1.000 4.000

6.000

5.000

-2.000

0

-2.000

0 or credit

BAD

+

-

-

-

-

6k amortized over 3 years…

10.000

5.000

1.000 4.000

2.000

5.000

2.000

0

2.000

666

1334

+

-

-

-

- 10.000

5.000

1.000 4.000

2.000

5.000

2.000

0

2.000

666

1334

+

-

-

-

- 10.000

5.000

1.000 4.000

2.000

5.000

2.000

0

2.000

666

1334

+

-

-

-

-

10/24/2012

PROFIT AND LOSS

Earnings

COGS

Overhead Expenses

EBITDA


Contribution Margin

EBIT

Financial result

EBT

Taxes

Net Result

+

-

-

-

-

10/24/2012 28

CASH FLOW STATEMENT

Collectibles

Payments (Direct / Overhead)

Operating Cash

-

Annual Cash Balance

Investments

Temporary financial earnings

Investment Cash

-

+

Capital Subscriptions

-

New Debt

Principal of debt

Dividends

Financial Cash

-

+

24/10/2012 29

Company with increasing profits

24/10/2012 30

But if the same company sells with a difference of payments above 5 months the company can go bankrupt

-100

0

100

200

300

400

500

600

700

Year 1 Year 2 Year 3 Year 4

Margen

Cobros

Pagos

Caja

Margin

Collections

Payments

Cash balance

24/10/2012 31

We want to be more top heavy

Price

Cost

Overhead Expenses

EBITDA

Contribution Margin

-

-

24/10/2012 32

But not too much

Price

Cost Overhead Expenses

EBITDA

Contribution Margin

-

-

24/10/2012 33

And Not bottom heavy

Price

Cost

Overhead Contribution Margin

-

-

EBITDA

24/10/2012

Active where is my money Passive where does it come from

Long-Term Outside Capital

Tangible Equity Long-Term Assets

Short-Term Assets

Short-Term Outside Capital

Working Capital

BALANCE SHEET

Investments Depreciations

Debt Treasury Inventory

Creditors Short-term bank VAT

Banks

Social Capital Net Results Earnings

24/10/2012

Price is what you pay. Value is what you get Warren Buffett

94 M EUR

VS

1 M Tshirt+ 1st liga

24/10/2012 36

Earnings Expenses EBITDA Amort. EBIT T in EBIT Variation WC

CAPEX FCF

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 expenditures

NOPLAT Amort.

CAPM

r% = Rf +(MRP*β)

Price of Risk

Non Risky

Stuff

EQUALS

How much it that matters

Market Risk Prem,

Market Risk Premium

= Market Risk - Risk Free Rate

CAPM

r% = Rf +(MRP*β)

Price of Risk

Non Risky

Stuff

EQUALS

How much it that matters

Market Risk Prem,

β=Positive

β=Negative

WACC

WACC= Ke * (%e) + Kd (%d)

WACC

WACC= Ke * (%e) + Kd * (%d)

Money

Equity Costs

COSTS How much

You use

Debt Costs

24/10/2012 44

Earnings Expenses EBITDA Amort. EBIT T in EBIT Variation WC

CAPEX FCF

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 expenditures

NOPLAT Amort.

#StartSpain

WHO IS WHO

#StartSpain

Industriales

Source: Perennius

#StartSpain

WHO IS WHO

#StartSpain

Involucración

Industriales

Capital Riesgo

Friends and family

Business Angels

Family Office 1

Source: Perennius

#StartSpain

HOW PLAYERS INVEST

#StartSpain

Involucración

Pureza financiera

Industriales

Capital Riesgo

Friends and family

Business Angels

Family Office

2

1

Source: Perennius

#StartSpain

HOW PLAYERS INVEST

#StartSpain

Involucración

Pureza financiera

Industriales

Capital Riesgo

Friends and family

Business Angels

Family Office

Dinero propio

Dinero de terceros

Origen de los fondos 3

2

1

Source: Perennius

#StartSpain

HOW PLAYERS INVEST

24/10/2012

INVESTMENT STAGES

THE CHASM

Why they Invest What they Measure Decision Time

Family, Friends and Fools

Confidence Personal

Commitment Fast

Subsidies and Public Assistence

Policy alignments

Compliance merits

Slow

Business Angels Personal affinity Profitability Fast

Venture Capitalists Investment

criteria Profitability Slow

Industrial Partners Strategic criteria Contribution to

business Slow

Source: HighGrowth; Elaboración Okuri Ventures

INVESTMENT CRITERIA

24/10/2012

Target yearly return

Holding period (years)

Investment death rate

Entry/exit multiplier

25%+ 3-5 <20% x3,5

25%+ 3-5 >60% x10+

PE

VC

15%+ 4-7 >80% x20+ BA

DESIRED RETURN

0

5

10

15

20

25

Sales Margin Debt Arbitration Total

24/10/2012

Shareholder Return

Investment Multiplier

PE

VC

Source: Cifras orientativas

ORIGIN OF MULTIPLIERS-LEVERS

24/10/2012

1 / (1-n)

Source: http://www.paulgraham.com/equity.html

CONCLUSION

24/10/2012


ITS BETTER TO HAVE A SMALLER PIECE

24/10/2012


OF A BIGGER PIE

24/10/2012

8%


CONCLUSION

24/10/2012

1 / (1-.08)


CONCLUSION

24/10/2012

8.7%


CONCLUSION

24/10/2012

1 / (1-n)


CONCLUSION

fall 2012 week 3 fin 101

Documents

amortizations ebit

ebit amort

kd d d

market risk risk free

market risk premium

company risk dont

financial projections

ebit t