 Reading Financials The non-traditional perspective Jim Cunningham, Triannic LLC October 4, 2014

Traditional Uses  Measure the viability of the business  Assess the going-concern value of the business  Legal/regulatory assessments and valuations

Traditional Financial Statements The GAAP Statements:  Balance Sheet  Income Statement  Statement of Cash Flows

Non-Traditional Perspective  Venture Capitalists  Organized Groups of Angel Investors  Sophisticated Startup Investors  Mega-Acquirers (Google, Amazon, etc.)

Non-Traditional Goals  Evaluate the Competency of Management  Especially the Financial Literacy of the CEO  Understand the Controllable Costs  Learn the Use of Funds  Assess the Potential of the Business

Financial Competency: The Pitch Session  It is critical that the CEO understand the Financials  “The CFO will answer the financial questions” is failure  Action: memorize the key numbers  Action: absorb the Assumptions behind those numbers  Action: assess the risk factors to each number and have answers

Tieing the Plan Together 1. Bizplan Text 2. Quantified Assumption 3 Financial Projection

The Key Financials  Projections (cash-basis if appropriate)  Five years is preferable –investors have 5 year horizon  Conservative vs aggressive?  Monthly for first 2 years, quarterly for last 3 is best  Uses of Funds is important  Clear Assumptions tied to the Projections  You must Justify the Amount Requested

The Key Financials, cont.  Valuation –The Final Number  Investors expect the company to propose a valuation  Investors are looking for a 35% - 25% annual return (IRR)  Valuation methods: startup-valuation-works/ is a clever short summarywww.fundersandfounders.com/how- startup-valuation-works/

Beyond the Statements The Management Dashboard  Key financial-statement numbers  Key non-financial numbers  Key early-warning information

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 Jim Cunningham  Principal, Triannic LLC  