1. Entrepreneurial Finance: Planning my Financial Strategy
Itxaso del-Palacio
smartinterns.co.uk

2. What do we know… What are the financial statements in the BP?
Accounting vs Entrepreneurial Finance
“Actual” vs “Pro Forma”
Cash vs Profit
Acquisition vs IPO
Burn Rate
“I’m looking for two-fifths of the post-, and for that I’ll put up to the two”
Cash is King but both are needed:
Cash – is recorded when money gets in and out
Profit – is recorded in the Profit & Loss (or income statement) and it is recorded when the product is delivered (but maybe not paid). With no profit a company will eventually run out of cash
Cash and Profit will be identical if we pay and charge right when we buy and sell, and there is no depreciation

3. Entrepreneurial Finance is not Accounting
Entrepreneurial Finance is about projections - forecasting is a forward-looking view, starting today and going forward into the future
It is also called “Pro Forma”

4. Entrepreneurial Finance
Income Statement (P&L)
Cash-Flow Statement
Balance Sheet

5. Income Statement or Profit & Loss (P&L)
Year 1
Year 2
Year 3…..
Revenue/Income
£100
Cost of Goods Sold (CGS) 50
Gross Profit
£50
Expenses 30
Taxes 5
NET PROFIT
£15
Variable costs
Operating Exp. HR
Training
Outsourcing
Marketing
Infrastructure
(Depreciation)
Non-cash Expense
Revenue or income
Cost of Goods – usually variable
Expenses include “operating expenses” – human resources, training, services rendered by 3rd parties, infrastructure, marketing
Accumulated Net Profit goes to Balance Sheet

6. Balance Sheet: Assets and Liabilities
Tangible
Intangible
= Assets - Liabilities
(dividends)
P/L
While the Income Statement is quite “intuitive” the Balance is not that much
Retained Earnings – which come from P/L – Usually not dividends
(Accumulated Depreciation)

7. Cash-Flow Statement Cash From/Used in Operating Activities
Paying customers
Salaries
Vendors
Landlord …
From Profit & Loss Statement
Cash From/Used in Investing Activities
Purchase or sale of assets ….
Cash From/Used in Financing Activities
Borrowing and paying loans
Equity transactions with investors
Dividends ….
Accumulated Cash-Flow goes to Balance Sheet (liquidity)

8. Break-Even Point… and the Valley of Death
Number of units sold in which
Total Costs = Total Revenues

9. Then – What are our financial hypotheses?
Define your assumptions (4)

10. Workout your Financial Plan
Start from Assumptions:
Revenue
Operating Costs
Investment Assets
Timing of Events
Preliminary Financial Statement:
Income Statement
Balance Sheet
Cash-Flow Statement
Net Working Capital Need
External Financing needed?
Risk and Sensitivity Analysis

11. Investment Milestones Sources Stages of Capital
Complete the team, Customer development, formalize the plan.
Angels, grants,
3 F’s (love $)
Accelerators
Seed or
start-up
Development
(Series A)
Growth
(Series B, C, D…)
Competitive or maturity
Product development, prototype, ready for launch.
VCs
Launch and growth phase.
VCs
Corporate VC
Mature firm in a competitive context.
Banks,
Public equity market

13. Dealing with Investors How would you approach investors?
Develop a relationship with the investors
Investment is a marriage
It’s a very small world
Show them your milestones
Learn a new language
NDA – run away!

14. Dealing with Investors
Keep expectations low
Keep working on your start-up
Don’t believe it until…
Rejection is not personal
Avoid inexperienced investors – go for smart money!
How much money? – not too much, not too little
Rule of valuation: £x=25%

15. Remember to… Keep your “burn rate” low Make realistic assumptions
Do you really need external money?
“Get married” only if you are “in love” 

16. Thanks!
Q&A
Itxaso del Palacio