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Webinar Q & A Session –Financial Analysis and Planning- Worksheet 5

Tuesday, August 6, 2013

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Q & A Session 1- Financial Analysis and Planning

• Q 1. What does ASP stand for?– Average Selling Price.

• Q 2. What do you mean by electronic flow?– This has to do with information that comes along with producing the product, for example data. The

information you provide to customers might be of value. Always try to find a way to monetize this information.

• Q 3. Can you address low gross margin industry, but expect to have reliable, long term sales?– Yes, you can address low gross margin industry and expect reliable long term sales. For example

retail and grocery sectors are reliable ones. So yes, you can have a business out of it, but as a small enterprise, you need to raise money. Products and solutions that generate high margins are important to you, because strategic partners and VCs are interested in that. They are not interested in low margin business. Exception might be having a very efficient business. So you can do it, but it is definitely more challenging. Thus look for ways to have high margin. Also depends who you approach to, if you do not need VCs, then it is not a problem.

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Q & A Session 2- Mapping Business Model Canvas to Financial Statements

• Q 1. Does the flexible model always lead to higher profit margins? Or are there cases in which you would choose to take on extra cap ex to generate higher longer term profits? Or, is it advantageous to use a mixture of scenarios to boost resilience?– It is not true that outsourcing production always leads to higher margins. It depends on the

manufacturing agreement that you have with your supplier. However you do have the potential for realizing the higher growth margins earlier on. Whereas when you do it yourself you are subjected to the equipment cost, as well as hiring labor etc.

– Choosing to take extra cap ex to generate higher long term profits - yes when the amount of capital that results from your approach, is something that is achievable to raise. For some degree, many would like to control the production, but it requires significant amount of investment upfront. But today’s market investors (incl. angel investors) have moved away from the capital intensive businesses. Thus you have to be mindful of the conditions of the marketplace.

• Q 2. How would you recommend the treatment of cumulative cash at end of pro forma window (e.g. year 5)?– Cumulative cash flow means how much you need to raise. Doing the scenario analysis, will help to

understand that better.• Q 3. Should we show working capital debt for conventional industry practice (thus showing more

positive cash cumulative)?– As an early stage company, you cannot always have an access to working capitalized. However if you

are fortunate enough to structure one, it is a way to reduce the cash flow requirements of your business, although there is a cost for that.

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Q & A Session 2- Mapping Business Model Canvas to Financial Statements

• Q 4. If your business is software based, how do you estimate costs?– There are different types of costs. For example in e case of a mobile app, customer acquisition costs are

very high. These include getting out there, getting subscribers to subscribe and this is expensive in staffing and in marketing materials. They have to deploy it in order to achieve the sales growth.

• Q 5. How does one do this analysis when there are no product sales during technology development and scale-up for all three years?– You will have to do this analysis without revenue piece, but include costs like general administration,

personnel, salary etc. So you need to budget these costs out. Then you can see the revenues needed.• Q 6. How do you estimate revenues from lead generation?

– This depends really on the product and end customers. In order to estimate revenues, take into account the feedback what you have collected from potential customers, look at the value proposition, look at what competitors are doing. You need to use the information found from the customer discovery process. This is the information you need to use. For example, do a paper exercise asking customers, what is the volume and price they would pay for your product. This is a good way of forecasting. That gives you credibility.

• Q 7. How do you feel about using outside financial advisors to help raise capital for pre-revenue companies? What sorts of terms should you expect (retainer, commission, etc.)?– Be really careful to get the right person, make sure that person or organization is not simply a broker but an

investment banker. He has to put together a strategy, materials, pitch documents, terms, retainer etc.

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Q & A Session 2- Mapping Business Model Canvas to Financial Statements

• Q 8. For a software company, do development costs accrue to R&D or Personnel?– This is a question to an accountant.

• Q 9. Do you have a recommendation for a spreadsheet that can do some of these calculations without each and every one of us building from scratch. The CTO spreadsheet is so basic it only really captures the end result.– There is actually a base projection base-sheet in the Wiki, available for everyone under September 10

deliverables.

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Q & A Alternative Sources of Funding

• Q 1. Are there limits on responses in Worksheets?– Please give a reasonable response. Only “yes” or “no” is not enough. There is character limits in the

Worksheets.• Q 2. I have completed the first 5 worksheets in word. But no feedback yet so I haven’t entered them into the

online should I start without mentor’s feedback– Firstly, you can ask feedback from your mentor. No one will check you worksheets, before you ask. Please

ask your mentor for a feedback. You can always do changes in your Worksheets before September 10th. The judges are not allowed to check your Worksheets.

• Q 3. What happens if I cannot get a hold of my mentor?– Please reach out to your mentor chair and other specialist mentors. If you do not get help, contact

mentor’s chair and regional personnel. Do not lose time by waiting and be persistent.• Q 4. Can we assume there is no deadline to add appropriate generalist mentors so long as they register on the

CTO website and get matched by the region?– There is no deadline

• Q 5. Do the answers need to be in exact sequence as the questions or can they be embedded in the flow of the answer?– Please add the numbers in front of the answers. Please do not repeat the questions. So no, the answers do

not have to be in exact sequence, just make sure you mark it with the appropriate number.