financial plan Flashcards
revenue forecast is most important part of the financial plan, explain
a lot of uncertainty
you need to do investments in sales and marketing to receive revenue
it can take some time before the first sales happen
2 ways of calculating it:
- top down : indication of upside potential
- bottom up approach: size of serviceable available market, serv obtainable market, shows effort needed to make revenue
what is the use of the financial plan
asses the viability of the business asses the burn rate & runway valuate the shares develop fundraising strategy: how much is needed, when, how many rounds scenario & sensitivity analysis benchmark for performance measure
what is a term sheet
a funding offer from the vc to the entrepreneur, with terms & conditions: pps amount raised pre money valuation liquidation preference anti dilution rights voting and control rights registration rights
what are preferred shares
are shares that are converted into common shares at IPO or when the holder decides to do so
protective provisions?
de facto veto rights
type of anti dilution rights
non-price based dilution rights: right of first refusal
price based dilution rights: full ratchet, narrow & broad-based WAF,
explain full anti dilution ratchet
the A round investor gets double the amount of the new B-round investor, e.g. B gets 26%, then A gets 52% of the shares
explain the basics of the price based anti dilution rights
the protection happens through the adjustment to the conversion rate of the preferred shares. with the conversion rate = purchase price / conversion price
conversion price of narrow based waf anti dilution
1$ * (# pre money preferred shares + # shares the new investor would have received at the old price) / (# pre money preferred shares + # shares the new investor will receive at the new price)
conversion price of the broad based WAF
1$ * (# pre money fully diluted shares + # shares the new investor would receive at the old price) / (# pre money fully diluted shares + # shares the new investor receives at the new price)
what are liquidation preferences
aka exit preferences, they determine how the proceeds are shared in a liquidity event.
2 elements:
initial liquidation preference: what do preferred shares get first
participating preference: how will the preferred shares participate in the remaining proceeds
what are pay-to-play provisions
existing investors have to invest on a pro-rata basis in subsequent financing rounds, otherwise they will lose some of their rights or their stock is converted into common shares
drag along vs tag along rights
drag along: an investor can drag along all other investors when there is a sale –> protects majority SHers
tag along: investors have the pro-rata right to participate in an offer to buy another investor’s position –> protects minority SH’ers
what are tranched deals
you have the capital commited but not fully disbursed, meaning with every milestone more capital will become available to the company
what are exit provisions and redemption rights
exit provisions is the right to approve or provoke a sale of a company.
the redemption right requires the company to redeem the preferred stock in order to guarantee an exit for the investor.
