Spring 2011

Tetuan Valley, April 2011

Week 3

Participating OrganizationsIn Collaboration with

Finance for Entrepreneurs

21/04/2011

Objective

Introduce students with tehcnological backgrounds to key financial concepts that are esential at the hour of starting a business

Result

•Comprehension of key financial indicators•Ability to parameterize the models given the face value of a startup and to make financial projections to investors

Duration

2 sessions, 4hr

Session 1• Concepts• Principals• Equations• Investors; Objectives and restrictions, stages, “Venture Capital” and

Value Levers• Conclusions for the entpreneur

Session 2• Business Plan• Price• Business Model• Other tools

21/04/2011 4

TIME VALUE OF MONEYEffect of compound interest

“A bird in the hand is worth two in the bush”

=

21/04/2011 5

DIVERSIFICATIONMarket vs. Company Risk

“Don´t put all your eggs in one basket”

21/04/2011 6

PRICE OF RISKCorrelation of Risk & Return

“There´s no such thing as a free lunch”

21/04/2011

Time value of money

Diversification

Price of risk

(Sharpe ratio)

Effect of compound interest

“A bird in the hand is worth two in the bush”

Market vs. Company Risk

“Don´t put all your eggs in one basket”

Correlation of risk & return “There´s no such thing as a free lunch”

IN GRAPHS

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BALANCE SHEET

STATEMENTS OF ANY COMPANY

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RELATIONSHIP BETWEEN ACCOUNTS

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Company with increasing profits

21/04/2011 11

But if the same company sells with a difference of payments above 5 months the company can go bankrupt

-100

0

100

200

300

400

500

600

700

Year 1 Year 2 Year 3 Year 4

Margen

Cobros

Pagos

Caja

Margin

Collections

Payments

Cash balance

4/21/2011

PROFIT AND LOSS

Earnings

COGS

Overhead Expenses

EBITDA

Depreciations and amortizations

Contribution Margin

EBIT

Financial result

EBT

Taxes

Net Result

+

-

-

-

-

4/21/2011 13

CASH FLOW STATEMENT

Collectibles

Payments (Direct / Overhead)

Operating Cash

-

Annual Cash Balance

Investments

Temporary financial earnings

Investment Cash

-

+

Capital Subscriptions

-

New Debt

Principal of debt

Dividends

Financial Cash

-

+

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Active where is my money Passive where does it come from

Long-Term OutsideCapital

Tangible EquityLong-Term Assets

Short-Term Assets

Short-Term OutsideCapital

Working Capital

BALANCE SHEET

InvestmentsDepreciations

DebtTreasuryInventory

CreditorsShort-term bankVAT

Banks

Social CapitalNet ResultsEarnings

21/04/2011

Price is what you pay. Value is what you get Warren Buffett

94 M EUR

VS

1 M Tshirt+ 1st liga

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Earnings Expenses EBITDA Amort. EBIT T in EBIT VariationWC

CAPEX FCF

FCF: what is it?

CAPM: r% = α + βp = Rf +(β*MRP)

WACC= Ke * (E / (D+E)) + Kd (D / (D+E))

FCF = Net income + depreciation – changes in working capital – Capital expenditures

NOPLATAmort.

21/04/2011

Brokers

Family officesSICAVs

CVC

PrivateBanking

Insurance & PensionFunds

Funds of Funds Investment

Banking

Angel Funds

Hedge Funds

Comercial Banks

Grants and Subsidies

Endowments

¿?

Sovereign Funds

WHO IS WHO

Involvement

Financial Purity

Industrialists

Venture Capital

Friends and

family

Business Angels

Family Office

Own Money

Others Money

Funds Origin3

2

1

Source: Perennius

HOW PLAYERS INVEST

21/04/2011

INVESTMENT STAGES

THE CHASM

Why they Invest What they Measure Decision Time

Family, Friends and Fools

ConfidencePersonal

CommitmentFast

Subsidies and Public Assistence

Policy alignments

Compliance merits

Slow

Business Angels Personal affinity Profitability Fast

Venture CapitalistsInvestment

criteriaProfitability Slow

Industrial Partners Strategic criteriaContribution to

businessSlow

Source: HighGrowth; Elaboración Okuri Ventures

INVESTMENT CRITERIA

21/04/2011

Target yearly return

Holding period(years)

Investment death rate

Entry/exit multiplier

25%+ 3-5 <20% x3,5

25%+ 3-5 >60% x10+

PE

VC

15%+ 4-7 >80% x20+BA

DESIRED RETURN

0

5

10

15

20

25

Sales Margin Debt Arbitration Total

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Shareholder Return

Investment Multiplier

PE

VC

Source: Cifras orientativas

ORIGIN OF MULTIPLIERS-LEVERS

21/04/2011

1 / (1-n)

Source: http://www.paulgraham.com/equity.html

CONCLUSION