entrepreneurial finance: planning my financial strategy itxaso del-palacio i.delpalacio@ucl.ac.uk...

Entrepreneurial Finance: Planning my Financial Strategy

Itxaso del-Palacio

i.delpalacio@ucl.ac.uk

smartinterns.co.uk

What do we know…

• What are the financial statements in the BP?• Accounting vs Entrepreneurial Finance• “Actual” vs “Pro Forma”• Cash vs Profit • Acquisition vs IPO• Burn Rate• “I’m looking for two-fifths of the post-, and for that I’ll put

up to the two”

Entrepreneurial Finance is not Accounting

Entrepreneurial Finance

- Income Statement (P&L)

- Cash-Flow Statement

- Balance Sheet

Income Statement or Profit & Loss (P&L)

Revenue/Income £100

Cost of Goods Sold (CGS) 50

Gross Profit £50

Expenses 30

Taxes 5

NET PROFIT £15

Variable costs

Operating Exp.-HR-Training-Outsourcing-Marketing-Infrastructure (Depreciation) Non-cash Expense

Accumulated Net Profit goes to Balance Sheet

Year 1 Year 2 Year 3…..

Balance Sheet: Assets and Liabilities

(dividends)

P/L

= Assets - LiabilitiesTangibleIntangible

(Accumulated Depreciation)

Cash-Flow StatementCash From/Used in Operating Activities-Paying customers-Salaries-Vendors-Landlord-…

Cash From/Used in Investing Activities-Purchase or sale of assets-….

Cash From/Used in Financing Activities-Borrowing and paying loans-Equity transactions with investors-Dividends -….

From Profit & Loss Statement

Accumulated Cash-Flow goes to Balance Sheet (liquidity)

Break-Even Point… and the Valley of Death

Number of units sold in whichTotal Costs = Total Revenues

Then – What are our financial hypotheses?

• Define your assumptions (4)

Workout your Financial Plan

Start from Assumptions:-Revenue-Operating Costs-Investment Assets-Timing of Events

Preliminary Financial Statement: -Income Statement-Balance Sheet-Cash-Flow Statement

Net Working Capital NeedExternal Financing needed?

Risk and Sensitivity Analysis

Investment Milestones Sources Stages of Capital

Complete the team, Customer development, formalize the

plan.

Product development, prototype, ready for launch.

Launch and growth phase.

Mature firm in a competitive context.

Seed or start-up

Development(Series A)

Growth(Series B, C, D…)

Competitive or maturity

Angels, grants,3 F’s (love $)Accelerators

VCs

VCsCorporate VC

Banks,Public equity market

Dealing with Investors How would you approach investors?

1. Develop a relationship with the investors – Investment is a marriage – It’s a very small world– Show them your milestones

2. Learn a new language

3. NDA – run away!

Dealing with Investors

4. Keep expectations low

5. Keep working on your start-up

6. Don’t believe it until…

7. Rejection is not personal

8. Avoid inexperienced investors – go for smart money!

9. How much money? – not too much, not too little

10.Rule of valuation: £x=25%

Remember to…

• Keep your “burn rate” low

• Make realistic assumptions

• Do you really need external money?– “Get married” only if you are “in love”

Thanks!

Q&AItxaso del Palacio