1. Business 16 Stanford Department of Continuing Education Class # 2, 9/28/09 Financial Statements David Pezeshki Dave@alloyventures.com http://www.alloyventures.com/class.html

2. Administration o Questions from last week?

3. Overview o What is in the financial statements o Who uses the data o Common mistakes o Sources for examples o Preparing financial statements o Company valuation o Real world extreme example

4. What is in the financial statements? o Your 5-year business plan in numbers o An Outcome o Sales o Subscribers o Milestone (pharmaceutical)

5. What is in the financial statements? oSupport for the outcome oBalance Sheet oProfit & Loss Statement oCash Flow (use of funds) oHead Count oMilestones

6. Who uses the data? o Management o Operational Blue Print o “What if” analysis o Banks o Credit Lines (Growth Capital, Equipment) o Investors o Determining Valuation for Investment o Acquired Companies

7. Common Mistakes o Math Errors o column sum, carry forward, x-ref of amounts o Unrealistic Assumptions o Revenue of $10B by Year 5 o Lack of parallels with existing companies o Excessive Backup o 120 pages of supporting schedules

8. Sources for examples o Similar companies o Annual reports o EDGAR Online o (http://www.sec.gov/edgar/searchedgar/webusers.htm) o Investment bankers o Professional advisors o Attorney o CPA o Commercial bank

9. Preparing Financial Statements o Web 2.0.com, Inc. o Three founders o Develop online search engine o Office space is $6 sq ft o Can sell advertising for $5 (Per Thousand Impression) o Expect to sell 3B impressions in 2013

10. Company Valuation o Price to sell the company in 2013 o Price to sell equity in 2009 and 2010

11. Real world extreme example o YouTube, Inc. o Sold ~25% stake in 2005, 2006 for a total of 11.5M, that became worth ~400M o Google acquired company in 2006 at a valuation $1.5B

12. Finance Strategies o Sell Debt o Maintain ownership o Who is liable (personal guarantee) o Small Business Administration (SBIC) o Sell Equity o What do you get in exchange (other than capital)

13. Asset Protection o Business Insurance o Property, workers compensation o key man o Real Estate o property lease options o sub-leasing to others, expanding etc. o Computer file back-up o offsite o disaster recovery

14. THE END Remember class is on next week!