Financial Projections¶

Failure to plan is planning to fail

Startup CEO Role¶

Even if you don't understand accounting/finance, you need to know

• Average Selling Price
• Gross margins
• Cost of R&D
• Sales & Marketing Strategy & Expenses
• Start-up and/or Capital Expenses

Venture Capitalist Wants¶

• 3-5x absolute returns
• 5-7yr investment horizon
• 4x in 5yrs = 32% IRR
• Get a significant amount of $ invested
• Own a significant ownership % (50% +)

Tech Model¶

• COGS (Cost of Goods/Services): Unit costs + manufacturing O/H + Support
• R&D should be 10-20%
• G&A (General and administrative expensive) should be 5-15%
• Target operating profit of 15-20%
• Distribution strategy

IDK¶

• Do not use business planning software
• Do not project best-case/worst-case
• Build sales projection from the bottom-up

Tech companies rules-of-thumb¶

• Staffing drives departmental expenses
• Employee benefits add 15%
• Salaries wil be 60-70% of total expenses
• Remainder will be rent, utilities, travel

Cashflow Projections¶

• Burn rate
• Monthly operating loss + capital expenditures
• Cash flow projection
• Cumulative operating losses excluding depreciation
• Plus cumulative capital expenses
• Determining total cash required
• Cumulative operating loss + Cumulative capital expenses loss
• On the month you turn cash positive

Presentation¶

Financial Summary

• Always show % next to absolute values
• Show pre-tax only
• Don’t allocate G&A

Executive summmary

• Annual P&L for 4-5yrs
• Data to justify revenue projectison
• Unit sales
• Average Selling Price (ASP)
• When will you be profitable
• Total cash requirement

Full business plan

• Annual P&L for 4years
• Quarterly P&L for 4years
• Quarterly staffing plan for 4years
• Quarterly cash flow for 4years

Equity Distribution¶

Compensate for

• Ownership of IP
• Commitment
• Risk
• Sacrifice
• Past & future contributions

Work to be done > Work already done. Incentivize people to do things in the future

Everyone should vest

You can always grant later

Common ownership breakdown¶

• CEO: 5%
• VP: 1-2.5%
• Sr Manager: 0.25%

• Sr Ind Contributor: 0.1%

• Founding management gets 2x to 3x

• Founding employees gets 5x to 10x

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