ENTREPRENEURSHIP IN ENTERTAINMENT TECHNOLOGY WELCOME!

TODAY’S AGENDA Financial Statements Review from Tuesday Financial Modeling Examples

FINANCIAL STATEMENTS

MAIN TYPES Income Statement (P&L) Balance Sheet Cash Flow

FINANCIAL MODELS: DRIVERS, ASSUMPTIONS AND METRICS

FINANCIAL MODELS

What When How Why Who

FINANCIAL MODELS Simulation Rules + Assumptions + Initial Values

WHY? Test Scenarios Sustainable? Sensitivity Analysis Find Toxic Events Find Metrics

HOW? Hypothesize Test Iterate Try Different Models

DRIVERS AND METRICS Drivers Key factors that drive revenue and expenses Ratio Assumptions Numbers you plug into drivers Metrics A measurement of a Driver’s performance Ratio

EXAMPLE 1 – SUBSCRIPTION Drivers Revenue per Customer per Month Cost per Sales Lead Conversion Rate Churn Rate Metrics LCV/CAC Conversion rate (% leads who pay) Retention or churn (% repeat customers) Growth

EXAMPLE 2 – FREEMIUM GAMES Driver Conversion Rate Revenue per Paying User Churn Rate Hosting Cost per MAU Metrics LVC/CAC Growth Gross Profit Margin

SAMPLE FINANCIAL MODELS techcrunch.com/2010/10/10/teardown-13-ways-10-million-revenues/

EXAMPLE 3 – AD SUPPORTED Driver Revenue per Click Metrics Unique visitors Page views per visitor Conversion rate (% visitors who click)

EXAMPLE 4 – MARKETPLACE Driver Listings Closed Metrics New listings Conversion rate (% listings that close)

EXPENSE EXAMPLES Number of servers ← Pages served per minute Pages served ← Number of visitors Acquisition cost = Marketing cost per new customer R&D cost ← Number of products Customer support ← Number of customers

TEARDOWNS

ZYNGA Source: Public Filings

ANALYTICS ultichannel-funnels.html

WHITEBOARD EXERCISE

WHITEBOARD Revenue streams Costs of revenue (variable costs) Key drivers Key metrics Assumptions you’ll have to make Other important aspects of your model

NEXT CLASS

HOMEWORK Read techcrunch.com/2010/10/10/teardown-13-ways-10-million-revenues/ Financial Model for your market opportunity Meet with me to determine goal Excel spreadsheet Explicit detail on assumptions No company intro – just get straight to the data Due date: to Carl by Monday 2/25, 7pm

RESOURCES

Teardowns techcrunch.com/2010/10/10/teardown-13-ways-10-million-revenues/ techcrunch.com/2010/05/13/zynga-teardown/ techcrunch.com/2010/05/02/teardown-groupon/