ENTREPRENEURIAL FINANCE
SESSION 1: INTRODUCTION ...............................................................................................................................................................9
1 - SETTING THE STAGE ................................................................................................................................................................................. 9
Entrepreneurial Finance ..................................................................................................................................................................... 9
EU fact and figures ........................................................................................................................................................................... 10
What is an entrepreneur? ................................................................................................................................................................ 10
Three defining characteristics .......................................................................................................................................................... 10
Entrepreneurs make it happen through business ............................................................................................................................. 10
Valuation is a key skill as it is necessary to ....................................................................................................................................... 10
Structuring the deal - The toolkit ..................................................................................................................................................... 11
2 - ENTREPRENEURIAL FINANCE VS CORPORATE FINANCE .................................................................................................................................. 11
New venture creation process .......................................................................................................................................................... 11
Key risks involved in growth oriented innovative startups ............................................................................................................... 11
Why is entrepreneurial finance different from corporate finance .................................................................................................... 12
Differences ....................................................................................................................................................................................... 12
Assumptions of traditional models don’t hold (1) ............................................................................................................................ 12
Information problems ...................................................................................................................................................................... 13
Uncertainty leads to different views of the future ........................................................................................................................... 13
Addressing agency problems ........................................................................................................................................................... 13
Structuring the deal - The toolkit....................................................................................................................................................................... 14
Assumptions of traditional models don’t hold (2) ............................................................................................................................ 14
CAPM cost of equity, e.g. ................................................................................................................................................................................... 14
VC "Hurdle Rate" ............................................................................................................................................................................................... 14
VC Hurdle Rate: multiple expectations ............................................................................................................................................. 15
Conclusion ........................................................................................................................................................................................ 15
Entrepreneurial Finance versus Corporate Finance .......................................................................................................................... 15
3 - STAGES OF VENTURE DEVELOPMENT ........................................................................................................................................................ 16
Different steps in financing process ................................................................................................................................................. 17
How much money do you need? ...................................................................................................................................................... 17
Arguments for raising as MUCH money as possible .......................................................................................................................................... 17
Arguments for raising as LITTLE money as possible ........................................................................................................................................... 17
Example ............................................................................................................................................................................................................. 17
How much funding to raise at each stage? ...................................................................................................................................... 18
The valuation of a venture is not a linear process ............................................................................................................................ 19
Key to distinguish different stages in start-up and align financing strategy .................................................................................... 19
Valuation and funding sources are linked to the different development stages .............................................................................. 19
Valuations highly dependent on investor sentiment ........................................................................................................................ 20
In order to stay funded and minimize dilution, link fundraising efforts to achieving milestones ..................................................... 20
But how to raise capital at a very early stage? How to mitigate risk before your first funding round? ........................................... 20
La La Land almost never got made? What was the funding challenge for Damien Chazelle? When did they succeed? ................. 20
WRAP-UP.............................................................................................................................................................................................. 21
SESSION 1 QUIZ ........................................................................................................................................................................................ 22
SESSION 2: SOURCES OF FINANCING ............................................................................................................................................... 23
Using cryptocurrencies to fund your start up ................................................................................................................................... 24
1 - BOOTSTRAPPING .................................................................................................................................................................................. 24
What is bootstrapping?.................................................................................................................................................................... 24
Example ............................................................................................................................................................................................ 24
Bootstrapping .................................................................................................................................................................................. 26
Bootstrapping methods.................................................................................................................................................................... 26
Bootstrapping .................................................................................................................................................................................. 27
Why is bootstrapping so important? ................................................................................................................................................ 27
1
, Your personal funds .......................................................................................................................................................................... 27
Founders’ capital contribution .......................................................................................................................................................................... 27
Average amount invested at founding in BE (founder level) ............................................................................................................................. 28
Average amount invested at founding in BE (founding team level) ................................................................................................................... 28
2 - FRIENDS, FAMILY & FOOLS (3F’S) ........................................................................................................................................................... 28
Friends, Family & Fools (3F’s) ........................................................................................................................................................... 28
3 - INCUBATOR, ACCELERATOR & VENTURE STUDIOS........................................................................................................................................ 29
Incubator and Accelerator................................................................................................................................................................ 29
Examples .......................................................................................................................................................................................... 29
Incubator ........................................................................................................................................................................................................... 29
Accelerators: Station F (Paris) ............................................................................................................................................................................ 29
Accelerators in Belgium ..................................................................................................................................................................................... 30
Total follow-on funding from top accelerators ................................................................................................................................. 30
How much do accelerators / incubators charge? ............................................................................................................................. 31
Venture Studios ................................................................................................................................................................................ 31
Example in Belgium ........................................................................................................................................................................................... 32
4 - CROWDFUNDING.................................................................................................................................................................................. 32
Crowdfunding: the new kid on the block .......................................................................................................................................... 32
Two Trends go into Crowdfunding ................................................................................................................................................... 33
Definition .......................................................................................................................................................................................... 33
Advantages of Crowdfunding ........................................................................................................................................................... 34
Wisdom of the Crowd....................................................................................................................................................................... 34
Disadvantages of Crowdfunding ...................................................................................................................................................... 34
Crowdfunding Types ......................................................................................................................................................................... 35
Donation Crowdfunding .................................................................................................................................................................................... 35
Reward Crowdfunding ....................................................................................................................................................................................... 35
Debt Crowdfunding ........................................................................................................................................................................................... 37
Equity Crowdfunding ......................................................................................................................................................................................... 38
Valuation and equity-based crowdfunding ...................................................................................................................................... 39
Equity & Debt Crowdfunding in Belgium .......................................................................................................................................... 39
The Geographical Distribution of Platforms ..................................................................................................................................... 40
Comparative Market Volumes of Alternative Finance Transactions in the EU (2016) ...................................................................... 40
Equity Crowdfunding in Europe is still underdeveloped ................................................................................................................... 41
What’s the problem today?.............................................................................................................................................................. 41
Largest crowdfunding campaigns till 2019 ...................................................................................................................................... 41
Examples of crowdfunding platforms in Belgium ............................................................................................................................. 42
Legal Framework .............................................................................................................................................................................. 43
Tips for Successful Crowdfunding ..................................................................................................................................................... 43
Your Facebook friends and chances of being successful in crowdfunding........................................................................................ 43
Crowdfunding support comes from friends and family .................................................................................................................... 44
Crowdfunding is hard work! ............................................................................................................................................................. 44
The financing “chain”, throughout the innovative company life cycle ............................................................................................. 44
5 - BUSINESS ANGELS ................................................................................................................................................................................ 45
Business Angels - Example ............................................................................................................................................................... 45
The 7 things you think you know about business angels… ............................................................................................................... 45
Business Angels ................................................................................................................................................................................ 45
Showpad first raised capital from a Business Angel ......................................................................................................................... 46
Angels come in many different shapes and sizes ............................................................................................................................. 46
Business Angel Netwerk Vlaanderen ................................................................................................................................................ 46
BE Angels in Brussels and Wallonia .................................................................................................................................................. 47
Business angel returns in UK ............................................................................................................................................................ 47
Business angel returns in UK and entrepreneurial experience ......................................................................................................... 47
Advice on raising angel money ........................................................................................................................................................ 48
6 - VENTURE CAPITAL ................................................................................................................................................................................ 48
2
, Venture Capital - Examples .............................................................................................................................................................. 48
Venture Capital................................................................................................................................................................................. 49
Investment return (dependent on phase) ......................................................................................................................................... 51
Seed-stage venture capital becomes more important ..................................................................................................................... 52
Convertible notes often used in seed stage investment rounds ....................................................................................................... 52
Convertible note Example ................................................................................................................................................................................. 53
Why use convertible notes in seed stage investment rounds? ......................................................................................................... 53
Differences between business angels and VCs ................................................................................................................................. 54
Private Equity vs Venture Capital ..................................................................................................................................................... 54
7 – BANKS ............................................................................................................................................................................................... 54
By the end of 2019, bank debt was still most frequently used ......................................................................................................... 54
Banks ................................................................................................................................................................................................ 54
8 - STRATEGIC PARTNERS ............................................................................................................................................................................ 55
Strategic Partners............................................................................................................................................................................. 55
9 - GOVERNMENT MEASURES ...................................................................................................................................................................... 57
Government measures ..................................................................................................................................................................... 57
Examples .......................................................................................................................................................................................... 57
10 – IPO ................................................................................................................................................................................................ 58
IPO – Examples ................................................................................................................................................................................. 58
IPO .................................................................................................................................................................................................... 58
Media ............................................................................................................................................................................................... 59
DIFFERENCES BETWEEN SOURCES OF FINANCING.............................................................................................................................................. 59
HOW TO TARGET AN INVESTOR TO INVEST IN AN EARLY-STAGE VENTURE? .............................................................................................................. 59
How to pick a venture partner? ....................................................................................................................................................... 60
How to approach investors? ............................................................................................................................................................. 60
MAIN ELEMENTS TO EVALUATE WHEN ASKING FOR FINANCING ............................................................................................................................ 60
A - Is the business exposed to high risk of failure? ........................................................................................................................... 60
B - Is the business model scalable? .................................................................................................................................................. 61
C - Is the business model understandable for everyone? ................................................................................................................. 61
WRAP-UP ............................................................................................................................................................................................... 62
SESSION 2 QUIZ ........................................................................................................................................................................................ 63
SESSION 3: FINANCIAL PLANNING ................................................................................................................................................... 65
Importance of financial planning for start-ups................................................................................................................................. 65
UNDERSTANDING THE KEY TERMS OF A FINANCIAL PLAN................................................................................................................................... 65
Key questions in a financial plan ...................................................................................................................................................... 65
Financial Planning ............................................................................................................................................................................ 66
Financial planning is not about creating just another spreadsheet! What story do you tell with your spreadsheet? What’s the
underlying logic? .............................................................................................................................................................................. 66
Financial planning is a strategic exercise ......................................................................................................................................... 67
Which of these companies is better run? ......................................................................................................................................... 67
Which of these two companies do you prefer? ................................................................................................................................ 67
Or would you prefer this one with a more aggressive growth scenario? ......................................................................................... 68
The growth versus profit trade-off ................................................................................................................................................... 68
Remember: a focus on cash will always be needed! ........................................................................................................................ 69
To calculate your cash needs you need to understand the difference between profit and cash flow .............................................. 69
Key terms: revenues versus cash flows ............................................................................................................................................. 69
Steps in the development of a start-up’s financial plan ................................................................................................................... 70
Outputs of Financial Plan ................................................................................................................................................................. 70
STEP 1: REVENUE FORECAST ....................................................................................................................................................................... 71
Revenue Forecast ............................................................................................................................................................................. 71
6 reasons why my VC funded startup did fail ................................................................................................................................... 72
Case Study: QUALIPRO ..................................................................................................................................................................... 72
3
, QualiPro (Book, pages 210-213) ........................................................................................................................................................................ 72
The management team prepared a new plan (→ needed to create a new financial plan) ............................................................................... 73
Revenue budget................................................................................................................................................................................................. 73
New Plan: REVENUES ........................................................................................................................................................................................ 73
REVENUES – 2008 .............................................................................................................................................................................................. 74
REVENUES – 2009 .............................................................................................................................................................................................. 74
REVENUES – 2010 .............................................................................................................................................................................................. 74
STEP 2: P&L STATEMENT ........................................................................................................................................................................... 75
P&L Statement ................................................................................................................................................................................. 75
Case Study: QUALIPRO ..................................................................................................................................................................... 76
INVESTMENTS – 2007 ........................................................................................................................................................................................ 76
INVESTMENTS – 2008 ........................................................................................................................................................................................ 76
INVESTMENTS – 2009 ........................................................................................................................................................................................ 77
INVESTMENTS – 2010 ........................................................................................................................................................................................ 78
COSTS – 2007 ..................................................................................................................................................................................................... 78
COSTS ................................................................................................................................................................................................................ 79
Investments ....................................................................................................................................................................................................... 80
COSTS – 2008 ..................................................................................................................................................................................................... 81
REVENUES – 2008 .............................................................................................................................................................................................. 82
P&L – 2008 ........................................................................................................................................................................................................ 83
P&L – 2009 ........................................................................................................................................................................................................ 84
P&L – 2010 ........................................................................................................................................................................................................ 84
STEP 3: CASH FLOW STATEMENT .................................................................................................................................................................. 84
The Cash Flow of a Business ............................................................................................................................................................. 85
Differences between CF and P&L ..................................................................................................................................................... 85
Changes in Working Capital ............................................................................................................................................................................... 86
Key terms: working capital ................................................................................................................................................................................ 86
Cash flow statement revisited .......................................................................................................................................................... 87
Most companies plan for growth ..................................................................................................................................................... 87
Growth and Financing Need ............................................................................................................................................................ 88
Wal-Mart: Cash Flow Statement ...................................................................................................................................................... 88
Omega Pharma: Cash Flow Statement ............................................................................................................................................ 88
STEP 4: BALANCE SHEET............................................................................................................................................................................. 89
Balance Sheet ................................................................................................................................................................................... 89
Case Study: QUALIPRO ..................................................................................................................................................................... 89
Cash Flow Statement ......................................................................................................................................................................................... 89
When will QualiPro reach EBITDA-break-even?................................................................................................................................................. 93
What is the total amount of cash that QualiPro will need to raise? What is the latest point in time that this is needed? ............................... 93
How much cash would you advise QualiPro to raise immediately? And later? ................................................................................................. 94
Which milestones will QualiPro be able to reach with the cash raised initially? ............................................................................................... 94
What are the most crucial assumptions in the financial plan? .......................................................................................................................... 94
Based upon the insights provided by the financial plan, what changes would you suggest to the current business model? ........................... 94
STEP 5: ASSESS THE BURN RATE AND RUNWAY ............................................................................................................................................... 94
Assess the Burn Rate and Runway ................................................................................................................................................... 94
Median Time Between Rounds ......................................................................................................................................................... 95
Some questions on Burn Rate .......................................................................................................................................................... 95
Some US statistics on Burn Rate Pre-Seed........................................................................................................................................ 95
Some US statistics on Burn Rate Seed Round ................................................................................................................................... 96
5 Issues in Financial Planning ........................................................................................................................................................... 96
Always consider a worst-case scenario ............................................................................................................................................ 97
So how much cash to raise? ............................................................................................................................................................. 97
Financial plan allows to… ................................................................................................................................................................. 97
When do you need the cash? ........................................................................................................................................................... 97
Staged Financing .............................................................................................................................................................................. 97
Valuation Step-Ups Around Milestones ............................................................................................................................................ 98
4
SESSION 1: INTRODUCTION ...............................................................................................................................................................9
1 - SETTING THE STAGE ................................................................................................................................................................................. 9
Entrepreneurial Finance ..................................................................................................................................................................... 9
EU fact and figures ........................................................................................................................................................................... 10
What is an entrepreneur? ................................................................................................................................................................ 10
Three defining characteristics .......................................................................................................................................................... 10
Entrepreneurs make it happen through business ............................................................................................................................. 10
Valuation is a key skill as it is necessary to ....................................................................................................................................... 10
Structuring the deal - The toolkit ..................................................................................................................................................... 11
2 - ENTREPRENEURIAL FINANCE VS CORPORATE FINANCE .................................................................................................................................. 11
New venture creation process .......................................................................................................................................................... 11
Key risks involved in growth oriented innovative startups ............................................................................................................... 11
Why is entrepreneurial finance different from corporate finance .................................................................................................... 12
Differences ....................................................................................................................................................................................... 12
Assumptions of traditional models don’t hold (1) ............................................................................................................................ 12
Information problems ...................................................................................................................................................................... 13
Uncertainty leads to different views of the future ........................................................................................................................... 13
Addressing agency problems ........................................................................................................................................................... 13
Structuring the deal - The toolkit....................................................................................................................................................................... 14
Assumptions of traditional models don’t hold (2) ............................................................................................................................ 14
CAPM cost of equity, e.g. ................................................................................................................................................................................... 14
VC "Hurdle Rate" ............................................................................................................................................................................................... 14
VC Hurdle Rate: multiple expectations ............................................................................................................................................. 15
Conclusion ........................................................................................................................................................................................ 15
Entrepreneurial Finance versus Corporate Finance .......................................................................................................................... 15
3 - STAGES OF VENTURE DEVELOPMENT ........................................................................................................................................................ 16
Different steps in financing process ................................................................................................................................................. 17
How much money do you need? ...................................................................................................................................................... 17
Arguments for raising as MUCH money as possible .......................................................................................................................................... 17
Arguments for raising as LITTLE money as possible ........................................................................................................................................... 17
Example ............................................................................................................................................................................................................. 17
How much funding to raise at each stage? ...................................................................................................................................... 18
The valuation of a venture is not a linear process ............................................................................................................................ 19
Key to distinguish different stages in start-up and align financing strategy .................................................................................... 19
Valuation and funding sources are linked to the different development stages .............................................................................. 19
Valuations highly dependent on investor sentiment ........................................................................................................................ 20
In order to stay funded and minimize dilution, link fundraising efforts to achieving milestones ..................................................... 20
But how to raise capital at a very early stage? How to mitigate risk before your first funding round? ........................................... 20
La La Land almost never got made? What was the funding challenge for Damien Chazelle? When did they succeed? ................. 20
WRAP-UP.............................................................................................................................................................................................. 21
SESSION 1 QUIZ ........................................................................................................................................................................................ 22
SESSION 2: SOURCES OF FINANCING ............................................................................................................................................... 23
Using cryptocurrencies to fund your start up ................................................................................................................................... 24
1 - BOOTSTRAPPING .................................................................................................................................................................................. 24
What is bootstrapping?.................................................................................................................................................................... 24
Example ............................................................................................................................................................................................ 24
Bootstrapping .................................................................................................................................................................................. 26
Bootstrapping methods.................................................................................................................................................................... 26
Bootstrapping .................................................................................................................................................................................. 27
Why is bootstrapping so important? ................................................................................................................................................ 27
1
, Your personal funds .......................................................................................................................................................................... 27
Founders’ capital contribution .......................................................................................................................................................................... 27
Average amount invested at founding in BE (founder level) ............................................................................................................................. 28
Average amount invested at founding in BE (founding team level) ................................................................................................................... 28
2 - FRIENDS, FAMILY & FOOLS (3F’S) ........................................................................................................................................................... 28
Friends, Family & Fools (3F’s) ........................................................................................................................................................... 28
3 - INCUBATOR, ACCELERATOR & VENTURE STUDIOS........................................................................................................................................ 29
Incubator and Accelerator................................................................................................................................................................ 29
Examples .......................................................................................................................................................................................... 29
Incubator ........................................................................................................................................................................................................... 29
Accelerators: Station F (Paris) ............................................................................................................................................................................ 29
Accelerators in Belgium ..................................................................................................................................................................................... 30
Total follow-on funding from top accelerators ................................................................................................................................. 30
How much do accelerators / incubators charge? ............................................................................................................................. 31
Venture Studios ................................................................................................................................................................................ 31
Example in Belgium ........................................................................................................................................................................................... 32
4 - CROWDFUNDING.................................................................................................................................................................................. 32
Crowdfunding: the new kid on the block .......................................................................................................................................... 32
Two Trends go into Crowdfunding ................................................................................................................................................... 33
Definition .......................................................................................................................................................................................... 33
Advantages of Crowdfunding ........................................................................................................................................................... 34
Wisdom of the Crowd....................................................................................................................................................................... 34
Disadvantages of Crowdfunding ...................................................................................................................................................... 34
Crowdfunding Types ......................................................................................................................................................................... 35
Donation Crowdfunding .................................................................................................................................................................................... 35
Reward Crowdfunding ....................................................................................................................................................................................... 35
Debt Crowdfunding ........................................................................................................................................................................................... 37
Equity Crowdfunding ......................................................................................................................................................................................... 38
Valuation and equity-based crowdfunding ...................................................................................................................................... 39
Equity & Debt Crowdfunding in Belgium .......................................................................................................................................... 39
The Geographical Distribution of Platforms ..................................................................................................................................... 40
Comparative Market Volumes of Alternative Finance Transactions in the EU (2016) ...................................................................... 40
Equity Crowdfunding in Europe is still underdeveloped ................................................................................................................... 41
What’s the problem today?.............................................................................................................................................................. 41
Largest crowdfunding campaigns till 2019 ...................................................................................................................................... 41
Examples of crowdfunding platforms in Belgium ............................................................................................................................. 42
Legal Framework .............................................................................................................................................................................. 43
Tips for Successful Crowdfunding ..................................................................................................................................................... 43
Your Facebook friends and chances of being successful in crowdfunding........................................................................................ 43
Crowdfunding support comes from friends and family .................................................................................................................... 44
Crowdfunding is hard work! ............................................................................................................................................................. 44
The financing “chain”, throughout the innovative company life cycle ............................................................................................. 44
5 - BUSINESS ANGELS ................................................................................................................................................................................ 45
Business Angels - Example ............................................................................................................................................................... 45
The 7 things you think you know about business angels… ............................................................................................................... 45
Business Angels ................................................................................................................................................................................ 45
Showpad first raised capital from a Business Angel ......................................................................................................................... 46
Angels come in many different shapes and sizes ............................................................................................................................. 46
Business Angel Netwerk Vlaanderen ................................................................................................................................................ 46
BE Angels in Brussels and Wallonia .................................................................................................................................................. 47
Business angel returns in UK ............................................................................................................................................................ 47
Business angel returns in UK and entrepreneurial experience ......................................................................................................... 47
Advice on raising angel money ........................................................................................................................................................ 48
6 - VENTURE CAPITAL ................................................................................................................................................................................ 48
2
, Venture Capital - Examples .............................................................................................................................................................. 48
Venture Capital................................................................................................................................................................................. 49
Investment return (dependent on phase) ......................................................................................................................................... 51
Seed-stage venture capital becomes more important ..................................................................................................................... 52
Convertible notes often used in seed stage investment rounds ....................................................................................................... 52
Convertible note Example ................................................................................................................................................................................. 53
Why use convertible notes in seed stage investment rounds? ......................................................................................................... 53
Differences between business angels and VCs ................................................................................................................................. 54
Private Equity vs Venture Capital ..................................................................................................................................................... 54
7 – BANKS ............................................................................................................................................................................................... 54
By the end of 2019, bank debt was still most frequently used ......................................................................................................... 54
Banks ................................................................................................................................................................................................ 54
8 - STRATEGIC PARTNERS ............................................................................................................................................................................ 55
Strategic Partners............................................................................................................................................................................. 55
9 - GOVERNMENT MEASURES ...................................................................................................................................................................... 57
Government measures ..................................................................................................................................................................... 57
Examples .......................................................................................................................................................................................... 57
10 – IPO ................................................................................................................................................................................................ 58
IPO – Examples ................................................................................................................................................................................. 58
IPO .................................................................................................................................................................................................... 58
Media ............................................................................................................................................................................................... 59
DIFFERENCES BETWEEN SOURCES OF FINANCING.............................................................................................................................................. 59
HOW TO TARGET AN INVESTOR TO INVEST IN AN EARLY-STAGE VENTURE? .............................................................................................................. 59
How to pick a venture partner? ....................................................................................................................................................... 60
How to approach investors? ............................................................................................................................................................. 60
MAIN ELEMENTS TO EVALUATE WHEN ASKING FOR FINANCING ............................................................................................................................ 60
A - Is the business exposed to high risk of failure? ........................................................................................................................... 60
B - Is the business model scalable? .................................................................................................................................................. 61
C - Is the business model understandable for everyone? ................................................................................................................. 61
WRAP-UP ............................................................................................................................................................................................... 62
SESSION 2 QUIZ ........................................................................................................................................................................................ 63
SESSION 3: FINANCIAL PLANNING ................................................................................................................................................... 65
Importance of financial planning for start-ups................................................................................................................................. 65
UNDERSTANDING THE KEY TERMS OF A FINANCIAL PLAN................................................................................................................................... 65
Key questions in a financial plan ...................................................................................................................................................... 65
Financial Planning ............................................................................................................................................................................ 66
Financial planning is not about creating just another spreadsheet! What story do you tell with your spreadsheet? What’s the
underlying logic? .............................................................................................................................................................................. 66
Financial planning is a strategic exercise ......................................................................................................................................... 67
Which of these companies is better run? ......................................................................................................................................... 67
Which of these two companies do you prefer? ................................................................................................................................ 67
Or would you prefer this one with a more aggressive growth scenario? ......................................................................................... 68
The growth versus profit trade-off ................................................................................................................................................... 68
Remember: a focus on cash will always be needed! ........................................................................................................................ 69
To calculate your cash needs you need to understand the difference between profit and cash flow .............................................. 69
Key terms: revenues versus cash flows ............................................................................................................................................. 69
Steps in the development of a start-up’s financial plan ................................................................................................................... 70
Outputs of Financial Plan ................................................................................................................................................................. 70
STEP 1: REVENUE FORECAST ....................................................................................................................................................................... 71
Revenue Forecast ............................................................................................................................................................................. 71
6 reasons why my VC funded startup did fail ................................................................................................................................... 72
Case Study: QUALIPRO ..................................................................................................................................................................... 72
3
, QualiPro (Book, pages 210-213) ........................................................................................................................................................................ 72
The management team prepared a new plan (→ needed to create a new financial plan) ............................................................................... 73
Revenue budget................................................................................................................................................................................................. 73
New Plan: REVENUES ........................................................................................................................................................................................ 73
REVENUES – 2008 .............................................................................................................................................................................................. 74
REVENUES – 2009 .............................................................................................................................................................................................. 74
REVENUES – 2010 .............................................................................................................................................................................................. 74
STEP 2: P&L STATEMENT ........................................................................................................................................................................... 75
P&L Statement ................................................................................................................................................................................. 75
Case Study: QUALIPRO ..................................................................................................................................................................... 76
INVESTMENTS – 2007 ........................................................................................................................................................................................ 76
INVESTMENTS – 2008 ........................................................................................................................................................................................ 76
INVESTMENTS – 2009 ........................................................................................................................................................................................ 77
INVESTMENTS – 2010 ........................................................................................................................................................................................ 78
COSTS – 2007 ..................................................................................................................................................................................................... 78
COSTS ................................................................................................................................................................................................................ 79
Investments ....................................................................................................................................................................................................... 80
COSTS – 2008 ..................................................................................................................................................................................................... 81
REVENUES – 2008 .............................................................................................................................................................................................. 82
P&L – 2008 ........................................................................................................................................................................................................ 83
P&L – 2009 ........................................................................................................................................................................................................ 84
P&L – 2010 ........................................................................................................................................................................................................ 84
STEP 3: CASH FLOW STATEMENT .................................................................................................................................................................. 84
The Cash Flow of a Business ............................................................................................................................................................. 85
Differences between CF and P&L ..................................................................................................................................................... 85
Changes in Working Capital ............................................................................................................................................................................... 86
Key terms: working capital ................................................................................................................................................................................ 86
Cash flow statement revisited .......................................................................................................................................................... 87
Most companies plan for growth ..................................................................................................................................................... 87
Growth and Financing Need ............................................................................................................................................................ 88
Wal-Mart: Cash Flow Statement ...................................................................................................................................................... 88
Omega Pharma: Cash Flow Statement ............................................................................................................................................ 88
STEP 4: BALANCE SHEET............................................................................................................................................................................. 89
Balance Sheet ................................................................................................................................................................................... 89
Case Study: QUALIPRO ..................................................................................................................................................................... 89
Cash Flow Statement ......................................................................................................................................................................................... 89
When will QualiPro reach EBITDA-break-even?................................................................................................................................................. 93
What is the total amount of cash that QualiPro will need to raise? What is the latest point in time that this is needed? ............................... 93
How much cash would you advise QualiPro to raise immediately? And later? ................................................................................................. 94
Which milestones will QualiPro be able to reach with the cash raised initially? ............................................................................................... 94
What are the most crucial assumptions in the financial plan? .......................................................................................................................... 94
Based upon the insights provided by the financial plan, what changes would you suggest to the current business model? ........................... 94
STEP 5: ASSESS THE BURN RATE AND RUNWAY ............................................................................................................................................... 94
Assess the Burn Rate and Runway ................................................................................................................................................... 94
Median Time Between Rounds ......................................................................................................................................................... 95
Some questions on Burn Rate .......................................................................................................................................................... 95
Some US statistics on Burn Rate Pre-Seed........................................................................................................................................ 95
Some US statistics on Burn Rate Seed Round ................................................................................................................................... 96
5 Issues in Financial Planning ........................................................................................................................................................... 96
Always consider a worst-case scenario ............................................................................................................................................ 97
So how much cash to raise? ............................................................................................................................................................. 97
Financial plan allows to… ................................................................................................................................................................. 97
When do you need the cash? ........................................................................................................................................................... 97
Staged Financing .............................................................................................................................................................................. 97
Valuation Step-Ups Around Milestones ............................................................................................................................................ 98
4
