Tiecon 2010 Money, Money, Money How Much Do I Need? How Long Will It Last? How To Be Convincing

1. Tiecon 2010Money, Money, MoneyHow Much Do I Need?How Long Will It Last?How To Be Convincing

2. Deborah Kranz • 35 years of Financial Experience • Fortune 100 Corps, VC’s & startups • Motorola, Syva, Saga, 3Com, EY, KPMG, Interwest & Mayfield Fund • Clients- Admob, ArcSight, Aruba Networks, Palo Alto Networks, Xros, Kace, Aster Data, Clearwell, Mimosa, Rhapsody, Lookout, Kior, Calera • Significant Experience with Financial Plans

3. Starting Your Company Where to Begin

4. Why You Need A Model • Determine amounts and timing of cash needed to reach milestones and cash flowbreakeven • Determine the sources and uses of cash from startup to breakeven • To help investors understand the ROI & Exit 4

5. The Plan Process

6. Developing A Financial Model • Knowledge Prerequisites • Sources of Comparative Information • Presentation Format • Development Steps • Using the Model • Frequent Problems 6

7. Knowledge Prerequisites Understand Your Industry • What Problem Am I Solving? • What Products & Services Am I Providing • Understand & Analyze Your Customers & Markets • Understand & Analyze Competitors 7

8. Knowledge of Products & Services • Articulate problem you are solving & size of problem • What is the value proposition I can offer? • Understand & determine technology road map and specify key milestone dates • Understand & determine pricing for products • What are my competitive advantages? • Are there barriers to entry? • What are milestone dates for revenue 8

9. Knowledge of Markets & Customers • What are the markets and how large? • Who are the customers & what is their geographic distribution? • What is my potential market share? • How long is the sales cycle? • What are my sales channels? • Who are the competitors? 9

10. Analysis of Competitors • Research & understand your competitors • Public Information • Bankers, attorneys, advisors • How do you differentiate yourself from competitors 10

11. Sources of Comparative Data • Market Studies • Industry report (Hoovers,1st Research) • Investment bankers (Goldman, Morgan Stanley) • Big 4 CPA industry reports • Google 11

12. More Sources of Comparative Data • EDGAR System • S-1,10K (financial data, business) • Accessible through Yahoo Finance • Google “Company Name S-1” • Financial Consultants (Kranz & Assoc) • Comparative Start Ups 12

13. SalesforceS-1 Information from Edgar 13

14. Salesforce S-1 Information from Edgar 14

15. Presentation Format • Key Financial Statements • Income Statement • Cash Flow • Timing differences • Equipment, Inventory • Other Important Data • Headcount • Cash Burn • Cash • Capital Expenditures if significant • Inventory, if applicable 15

16. Format of Income Statement 16

17. Format of Cash Flow 17

18. How To Use The Model • Go to www.kranzassoc.com • Click on Resource Tab Useful Articles • Tiecon Model Available May 20, 2010 • Input Cells are Blue 18

19. Definitions • Cost of Sales – Costs directly attributable to sales • Gross Margin – Revenue minus Cost of Sales • Operating Expenses (OpX) – Company Expenses except for Cost of Sales • Capital Expenditures (CapX) – Cost of Equipment • Cash Burn – Cash going out of company 19

20. Steps in Developing Plan • Forecasting bookings and revenue • Forecasting cost of goods sold-COGS • Forecasting operating expenses-OPX • Forecasting capital expenditures-CAPX • Forecasting other uses of cash • Forecasting sources of cash 20

21. Bookings & Revenue Assumptions • Number of units sold • Average selling price per unit • Timing of orders vs. delivery • Bookings versus Revenue • Timing of customer payments 21

22. COGS Assumptions Costs Related to Revenue Generation • Manufacturing or Operations Dept Costs • Materials or Hosting & Bandwidth • QA & Testing • Purchasing 22

23. Department Assumptions - OpX • Research & Development • Sales & Marketing • General & Administrative 23

24. Research & Development Assumptions Costs to achieve technical milestones • Staffing • Recruiting • Consulting & Outside Services • Development Costs 24

25. Sales & Marketing Expenses required for sales forecast • Staffing • Recruiting • Travel • Consulting & Outside Services • Advertising & Promotion 25

26. General & Administrative • Staffing • CEO, Finance/Accounting, HR, IT • Recruiting • Consulting & Outside Services • Legal (General & IP) • Audit and Tax • Facilities (rent, utilities, communications) • Supplies, other 26

27. Staffing Assumptions$ in 000’s

28. Gross Margin Assumptions$ in 000’s 28

29. Other Uses of Cash • Operating losses ([SALES-COGS-OPX] <0) • CAPX • Other assets (deposits, prepaid expenses, accounts receivable, inventory) • Debt payments 29

30. Forecasting CAPX Outlining your Equipment Needs • Computers and Software • Industry Specific Equipment • Leasehold Improvements • Furniture 30

31. Sources of Cash • Operating profit ([SALES-COGS-OPX] >0) • Equity financing • Debt financing • Customer prepayments • Accounts payable 31

32. Debt Financing • Growth capital loans • Equipment loans • Equipment leases • Account Receivables lines of credit 32

33. Operating Expenses$ in 000’s 33

34. Sources & Uses of Cash $ in 000’s 34

35. Financings, Cash Burn, Cash Balance Cumulative Financings Cumulative Cash Burn Cash Balance 35

36. Common Forecast Problems • Time to market longer than forecast • R&D staff ramp slower than forecast • CAPX needs higher than forecast • Sales ramp slower than forecast • (both units & ASP) • COGS higher than forecast 36

37. Formed in 1995 • 40 experienced professionals • Cross all industries & stages • Experience with: • Over 200 companies all stages • Over 20 Venture Capital firms • Over 15 IPO’s • Over 20 Mergers & Acquisitions • Cost effective solution for startups

38. QUESTIONS? 38