Tiecon 2010

Money, Money, Money

How Much Do I Need?How Long Will It Last?How To Be Convincing

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

Starting Your Company

Where to Begin

Why You Need A Model

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Determine amounts and timing of cash needed to reach milestones and cash flow breakeven

Determine the sources and uses of cash from startup to breakeven

To help investors understand the ROI & Exit

Compelling Idea

Initial $ Needed

What Milestones

Break Even Point

Market / % Share

Profitability/Exit

Research -Study

Markets & Competitors

FinancialStatements

Understand Financial

Assumptions & Why They

Matter

DevelopCompany Financial Model & Validate

The Plan Process

Developing A Financial Model

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Knowledge PrerequisitesSources of Comparative Information Presentation Format Development StepsUsing the ModelFrequent Problems

Knowledge Prerequisites

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Understand Your Industry

What Problem Am I Solving?

What Products & Services Am I Providing

Understand & Analyze Your Customers & Markets

Understand & Analyze Competitors

Knowledge of Products & Services

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Articulate problem you are solving & size of problemWhat is the value proposition I can offer?Understand & determine technology road map and

specify key milestone datesUnderstand & determine pricing for productsWhat are my competitive advantages?Are there barriers to entry?What are milestone dates for revenue

Knowledge of Markets & Customers

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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?

Analysis of Competitors

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Research & understand your competitors

Public Information

Bankers, attorneys, advisors

How do you differentiate yourself from competitors

Sources of Comparative Data

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Market Studies

– Industry report (Hoovers,1st Research)

– Investment bankers (Goldman, Morgan Stanley)

–Big 4 CPA industry reports

–Google

More Sources of Comparative Data

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EDGAR System S-1,10K (financial data, business)

–Accessible through Yahoo Finance

–Google “Company Name S-1”Financial Consultants (Kranz & Assoc)

–Comparative Start Ups

SalesforceS-1 Information from Edgar

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Prospectus Summary 1 Risk Factors 5 Special Note Regarding Forward-Looking Statements 19 Use of Proceeds 20 Dividend Policy 20 Capitalization 21 Dilution 22 Selected Consolidated Financial Data 23 Management’s Discussion and Analysis of Financial Condition and Results of Operations 25 Business 41

Page

Management 55 Certain Relationships and Related Party Transactions 69 Principal Stockholders 72 Description of Capital Stock 74 Shares Eligible for Future Sale 78 Underwriters 80 Legal Matters 83 Experts 83 Change in Independent Accountants 83 Where You Can Find Additional Information 83 Index to Consolidated Financial Statements

Salesforce S-1 Information from Edgar

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Presentation Format

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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

Format of Income Statement

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Format of Cash Flow

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How To Use The Model

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Go to www.kranzassoc.com

Click on Resource Tab Useful Articles

Tiecon Model Available May 20, 2010

Input Cells are Blue

Definitions

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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

Steps in Developing Plan

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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

Bookings & Revenue Assumptions

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Number of units sold

Average selling price per unit

Timing of orders vs. delivery

Bookings versus Revenue

Timing of customer payments

COGS Assumptions

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Costs Related to Revenue Generation

Manufacturing or Operations Dept Costs

Materials or Hosting & Bandwidth

QA & Testing

Purchasing

Department Assumptions - OpX

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Research & Development

Sales & Marketing

General & Administrative

Research & Development Assumptions

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Costs to achieve technical milestones

Staffing

Recruiting

Consulting & Outside Services

Development Costs

Sales & Marketing

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Expenses required for sales forecast

Staffing

Recruiting

Travel

Consulting & Outside Services

Advertising & Promotion

General & Administrative

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Staffing–CEO, Finance/Accounting, HR, IT

RecruitingConsulting & Outside Services–Legal (General & IP)–Audit and Tax

Facilities (rent, utilities, communications)

Supplies, other

Assumptions January February MarchEmployee Staffing (#)Operations 0 0 0Research & Development, Eng 2 2 3Sales & Marketing 0 0 0General & Admin 1 1 1Fringe Benefit % of Salary 20% 20% 20%Bonus % of Salary 0 0 0

Avg Employee Salary ($000)OperationsResearch & Development, Eng $15.3 $15.0 $13.3Sales & MarketingGeneral & Admin $12.5 $12.5 $12.5

Recruiting Cost per new Emp ($000)Operations $8.0 $8.0 $8.0Research & Development, Eng $8.0 $8.0 $8.0Sales & Marketing $8.0 $8.0 $8.0General & Admin $8.0 $8.0 $8.0

Travel Cost per Emp FTE ($000)Operations $0.2 $0.2 $0.2Research & Development, Eng $0.3 $0.3 $0.3Sales & Marketing $1.0 $1.0 $1.0General & Admin $0.5 $0.5 $0.5

Sales Commissions as % or Revenue

10% 10% 10%

Staffing Assumptions$ in 000’s

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January February March

Headcount (Year End) 3 3 3

Income Projection ($000)

Bookings $ - $ - $ -

Revenue $ - $ - $ -

Operations

Salary and related $ - $ - $ -

Recruiting $ - $ - $ -

Travel $ - $ - $ -

Consulting/outside services $ - $ - $ -

Expensed equip/software $ - $ - $ -

Occupancy, supplies, other $ - $ - $ -

Operations Total $ - $ - $ -

Materials/direct costs $ - $ - $ -

Cost of Goods Sold $ - $ - $ -

Gross Margin $ - $ - $ -

Gross Margin Assumptions$ in 000’s

Other Uses of Cash

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Operating losses ([SALES-COGS-OPX] <0)

CAPX

Other assets (deposits, prepaid expenses, accounts receivable, inventory)

Debt payments

Forecasting CAPX

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Outlining your Equipment Needs

Computers and Software

Industry Specific Equipment

Leasehold Improvements

Furniture

Sources of Cash

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Operating profit ([SALES-COGS-OPX] >0)

Equity financing

Debt financing

Customer prepayments

Accounts payable

Debt Financing

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Growth capital loans

Equipment loans

Equipment leases

Account Receivables lines of credit

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January February MarchResearch & Development, EngSalary and related 36 36 48Recruiting – – 8Travel 1 1 1Consulting/outside services 5 5 5Expensed equip/software 4 4 4Development related 17 17 17Occupancy, supplies, other 2 2 2Research & Development, Eng Total

65 65 85

Sales & MarketingSalary and related – – –Recruiting – – –Travel – – –Consulting/outside services – – –Sales & Marketing related – – –Occupancy, supplies, other – – –Sales & Marketing Total – – –

General & AdminSalary and related 15 15 15Recruiting – – –Travel 1 1 1Consulting/outside services 3 3 3Legal, insurance, fees 10 10 10Occupancy, supplies, other 13 13 13General & Admin Total 42 42 42

Total Operating Expenses 106 106 126

Operating Income (Loss) ($106) ($106) ($126)

Operating Expenses$ in 000’s

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January February March

Operating Income (Loss) ($106) ($106) ($126)

Inventory (increase) decrease – – –

Accnts Rec (increase) decrease – – –Prepaids/Deposits (increase) decrease

(5) (5) (5)

Accnts Payable increase (decrease) 14 14 14

Accrued Payroll increase (decrease) 1 1 1

Cash Flow from Operations (97) (97) (116)

Cash (Used for) Capital Expenditures

(50) (50) (50)

Debt Service Payments (prin + int) – – –

Equip/Growth Capital Financings – – –

Equity Investments 10,000 – –

Cash Flow from Financing 10,000 – –

Increase (Decrease) in Cash $9,853 ($147) ($166)

Beginning Cash $– $9,853 $9,707

Ending Cash $9,853 $9,707 $9,541

Sources & Uses of Cash $ in 000’s

Financings, Cash Burn, Cash Balance

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0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q13 Q14 Q15 Q16 Q17 Q18 Q19 Q20

Cumulative Financings

Cumulative Cash Burn

Cash Balance

Common Forecast Problems

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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

Formed in 199540 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

QUESTIONS?

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