Financial Projections January 21, 2011

1. Sabin Environmental Prize Financial Projections January 21, 2011

2. Sabin Application (Due March 4) • One year of financial projections • Income Statement & Balance Sheet • Explanation of use of prize money

3. Sabin Finalist Requirements • Present March 31 • Five years of financial projections • Income Statement & Balance Sheet • Deal termsfor investors

4. Workshop Topics • How to do 5 Year financial projections • Figure out how much $ you need

5. Purpose of Financial Projections • Answer: Can the business make $? • Help you think through the details • Attract capital (investors) > To start out > And to grow

6. Stages of Financing

7. What do Investors Want? • Their money back in, say, 5 years • A nice return, say, 100% per year

8. Risk of Loss 50% gone in 4 years 8

9. Risk of Loss Lose SOME or All money 1/3 of the time Boring returns another 1/3 of the time Make good money 1/3 of the time Good Investors: 9

10. Example Exit Sales Break Even

11. Rules of Thumb • Sales: • Small in Year One • Big jump to Year 2 – 4x? 5x? 10x? • Less big jump to Year 3 – 1.2 x? 1.5x? • ~1x after to Year 4 and Year 5 • Profits: • Lose a little in Year One, more in Year Two • Break even Year 3, then 

12. Example Exit Sales Break Even

13. Moral of this Story If you want/need investor money • You must deliver the return they need • So, start with the endgoal in mind • These are the numbers I need… • Can my business produce them?

14. Strategy • Build a detailed Year One • Review the “Rules of Thumb” • Apply them to Years 2-5 • Then work backwards -- • What assumptions do you need? • Are these doable?

15. Types of Statements • Income Statement • Balance Sheet • Sources and Uses of Funds .

16. Start with an Income Statement

17. Your “Income Statement”

18. Company Income Statement

19. Income Statement Definitions Revenues (Sales): > $ value exchanged > for products or services Expenses: > $ value of resources used > to earn those revenues

20. Expenses Divide expenses into: Direct Costs/Expenses and Indirect Costs/Expenses

21. Direct Costs or “Cost of Goods Sold” Costs of Making a Product/Service Direct Costs = Cost of Goods Sold Materials Labor Packaging Inspection Shipping Customer Service Revenues – Cost of Goods Sold = Gross Profit

22. Operating Expenses (Sales & Marketing, General & Administrative, R&D or “S,G&A”) Other Costs – to run the Company Indirect Costs Rent Accounting Insurance Sales Expense CEO IT, HR, Legal, etc. Gross Profit – Operating Costs = EBITDA

23. Key Measure -- for Startups EBITDA Earnings Before Interest, Taxes, Depreciation & Amortization Measures -- earning power E - BIT - DA 23

24. Net Income (Loss) EBITDA minus: • Depreciation • Interest expense • Taxes • “One time events”

25. Why These Categories?

26. Depreciation 26

27. Depreciation Property, Plant & Equipment (Fixed Assets) • Long term assets of the company • Not for sale • Things that have or create value – over time

28. Examples of PP&E Buildings Factories Vehicles Equipment Computers Furniture

29. Depreciation • Fixed Assets provide valueover time • Also, wear out over time • Depreciationspreads these costs • Over their useful life

30. Example: A Company buys a wind turbine to generate its electricity. It pays $750,000 for the turbine. It expects the turbine to: • Last for 25 years, • Wear out evenly, and • Then be worth $0

31. Example: What is the “depreciation” of this asset? • $750,000/25 years = $30,000 year • $30,000 = annual depreciation expense This is called: “straight line” depreciation

32. Depreciation 32

33. Quick Review What Gets Depreciated? Green Wind Co. sells and installs wind turbines for customers. Are the following: Cost of Goods Sold, Operating Costs or Property, Plant & Equipment? Delivery trucks? Wind turbine? Finance staff? Installation? Sales people? Billing IT system?

34. Back to Building Projections

35. The Details • Sales: Price? First sale? How do sales grow? What makes them grow? • Costs: What do you need to make the product? Sell it? Who will you hire? When? Do you buy ads? Make brochures? • More costs: Where will your office be? Costs of running it? Who does the hiring? How do you pay people? Health insurance?

36. Start “ Big Picture ” > People ? > Machines ? > Advertising? > Locations? • What are the key sales drivers ?

37. Example > How many sales calls per month? > Success rate of sales calls? > Time till sale is completed? > Average price of a sale? • Sales require a sales force

39. The Product • Fresh farmed tilapia fillets • “Seafood Safe” and Organic • 100% organic feed • Purified and filtered re-circulated water

40. Evidence of Opportunity - over 3 years: • US seafood consumption up 12% - $12 billion • US tilapia consumption up 110% - $400 million • Demand for organic meat & fish up 120% Over 70% of Americans would by organic seafood if available; 60% ‘strongly prefer’ domestic

41. Customers • Suppliers of restaurants, grocery & fish stores • Also, Trader Joe’s, Whole Foods

42. Talking to customers: • 450 chefs and 150 retailers • Most prefer environmentally friendly fish • Local restaurant owner: “customers care” • Distributor: “Not enough good farms” • EcoFish: I will buy all you have to sell

43. Think “ Big Picture ” > Systems that grow fish • The Good Fish key sales driver:

44. Sales depend on “Pod Systems” • A Pod System produces 50,000 lbs fish/yr • Fresh organic tilapia sells for $5.63/lb • One Pod System in Year 1 • Couple of months to get going • Couple of months to ramp up

45. First 12 Month’s Projections Do this for 12 months

46. First Year 35 197

47. Next Step -- Costs Cost of Goods Sold – materials, labor, delivery, customer service Operating costs – sales people, travel, ads, CEO, rent, supplies • Going forward, 12 months

48. Cost of Goods Sold • Baby fish • Facilities: Rent & heating • Feed: Organic vegetarian • Staff: Monitor, move, clean, fillet fish • Delivery to customers • Byproducts: Waste and offal

49. Operating (S,G&A) Costs • Sales person • List in organic seafood directories • Advertise with trade associations • Host events, tours, tastings • CEO, accounting, IT, office rent

50. Depreciation – from Equipment purchases • “Pod System” • Filleting machine • $60,000 total • Lasts 10 years • (120 months)