Start-Up & Growth: Exam Summary
Lecture 1: Understanding basic financials
Why do we need financial data? To obtain and record the resources
needed to start and build a new venture.
- In the beginning cash is as least or more important than profit if a
company wants to grow and keep up financing its activities (payable
days) Low on cash?
o Make the cycles that you pay (current liabilities) later
o Make sure that people pay you faster
o Increase profitability
o Reduce investments (Capex)
o Seek Debt/Equity investments to gain cash
- Net Working Capital (NWC) = Current Assets – Current Liabilities
- ∆NWC = NWC(n) – NWC(n-1)
- Free Cash Flow
, Lecture 2: Financing Entrepreneurial Ventures
Asset Intensity Rate: Businesses with high AIR have negative cash flows.
On the other hand, business with negative AIR will generate cash
(as they have needed less assets to make revenue). These
relationships become steeper as growth increases. So, a venture
can still make cash while being unprofitable, when it has a negative
AIR.
Valuation
- Up round: value of the firm increases between the post-money
valuation of the previous round and the pre-money valuation of the
current round
- Flat Round: value of the firm stays the same between the post-
money valuation of the previous round and the pre-money valuation
of the current round
- Down Round: value of the firm decreases between the post-money
valuation of the previous round and the pre-money valuation of the
current round
- Options Pools: allowing employees to buy stock at a preset price.
If stock price increases, this becomes valuable for employees. And it
works as an incentive for employees. Investors, on the other hand,
will most likely want an option pool to happen before they invest,
otherwise the option pool will dilute their shares.
- Given that startups have neither a long history of operational
performance nor a predictable growth trajectory from which to
develop forecasts, valuation tools based on discounted cash flow
(DCF) tend to be less helpful in developing a sense of a startup’s
valuation than they are in their typical application to large
companies so they use implied valuation based on the amount
the investors invest for their shares
Lecture 1: Understanding basic financials
Why do we need financial data? To obtain and record the resources
needed to start and build a new venture.
- In the beginning cash is as least or more important than profit if a
company wants to grow and keep up financing its activities (payable
days) Low on cash?
o Make the cycles that you pay (current liabilities) later
o Make sure that people pay you faster
o Increase profitability
o Reduce investments (Capex)
o Seek Debt/Equity investments to gain cash
- Net Working Capital (NWC) = Current Assets – Current Liabilities
- ∆NWC = NWC(n) – NWC(n-1)
- Free Cash Flow
, Lecture 2: Financing Entrepreneurial Ventures
Asset Intensity Rate: Businesses with high AIR have negative cash flows.
On the other hand, business with negative AIR will generate cash
(as they have needed less assets to make revenue). These
relationships become steeper as growth increases. So, a venture
can still make cash while being unprofitable, when it has a negative
AIR.
Valuation
- Up round: value of the firm increases between the post-money
valuation of the previous round and the pre-money valuation of the
current round
- Flat Round: value of the firm stays the same between the post-
money valuation of the previous round and the pre-money valuation
of the current round
- Down Round: value of the firm decreases between the post-money
valuation of the previous round and the pre-money valuation of the
current round
- Options Pools: allowing employees to buy stock at a preset price.
If stock price increases, this becomes valuable for employees. And it
works as an incentive for employees. Investors, on the other hand,
will most likely want an option pool to happen before they invest,
otherwise the option pool will dilute their shares.
- Given that startups have neither a long history of operational
performance nor a predictable growth trajectory from which to
develop forecasts, valuation tools based on discounted cash flow
(DCF) tend to be less helpful in developing a sense of a startup’s
valuation than they are in their typical application to large
companies so they use implied valuation based on the amount
the investors invest for their shares
