Effective Financial Modeling and Funding Strategies for Startups

Financial Modeling Financial Modeling Neveen Ahmed

What do you expect to learn today ? What do you expect to learn today ? 1- BUDGET Revenue Numbers Money Sell a product Financial appraisal valuation Exisiting plan Financing options Sustainable financing Financial Model 2- 3 4-

Agenda What are the funding options! Financing Debt versus Equity Financial Modeling Tips Financial Model Example

What are the funding options! STARTING WITH PERSONAL FINANCING REACHING OUT TO FRIENDS AND FAMILY APPLYING FOR A BUSINESS LOAN CATCHING THE ATTENTION OF AN ANGEL INVESTOR PITCHING YOUR STARTUP TO VENTURE CAPITALISTS HOSTING A CROWDFUNDING CAMPAIGN JOINING A STARTUP INCUBATOR SEEKING OUT GOVERNMENT GRANTS AND SUBSIDIES APPLYING FOR MICROLENDING

FAMILY AND FRIENDS Borrowing from them can often mean paying lower interest rates than compared to a bank. Drawback?

ATTRACTING VC AND ANGEL INVESTORS Understand their background Know your numbers:highlight your startups potential growth Focus on your product benefits:how can your product help potential customers. Promote your team members:VCs are looking for a team Analyze your competitors Angel investing works by: Offering you money in exchange for a stake in your company. Receiving a portion of the profits. Having some control over your company.

BUSINESS LOAN Your business plan should be able to offer information, like your: Financial numbers Growth plan Mission statement Products and services Company's leadership and team

Knowing your audience:Target a specific group of people interested in your startup before you begin spreading the word about your campaign. This can help you focus your efforts and use resources more efficiently. Some tips for setting up a crowdfunding campaign: Promoting your campaign:One of the best tools for spreading the word is social media. Engage your audience! Picking the right platform:Research online sites that fit your industry and niche. Creating marketing materials:This includes using both digital and print to advance your initiative.

THE 6 BEST CROWDFUNDING PLATFORMS OF 2022 Best Overall: Indiegogo Best for Startups: SeedInvest Technology Best for Nonprofits: Mightycause Best for Investing: StartEngine Best for Individuals: GoFundMe Best for Creative Professionals: Patreon

BUSINESS PLAN & FINANCIALS

WHERE TO START

FINANCIAL MODELING What is it ? Tool to estimate potential of a company Estimate the money you need and revenue generated Spending profit effeciently when you know your cashflow

FINANCIAL MODELING What a good finacial model should include? Spending on marketing, sales, growth , Ads Renevenue generated from those spendings Cost aasociated with revenue Ask your self : Is this combination of variables will make the company expand

TIPS You can t grow if your marketing expense is stable overtime Correlation between cost and revenue growth and revenue are correlated You need to estimate COGS Revenue Sales and general expenses Working capital and CAPEX

TIPS Size of the Market (Total Addressable Market) It is the size of your Market Top down versus Bottom up Number of targeted costumers times your price Target costumer and target geography Price WTP Be Realistic Challenge your thinking Challenge your assumptions

GENERAL AND ADMINISTRATIVE GENERAL AND ADMINISTRATIVE (G&A) (G&A) Are the day-to-day costs a business must pay to operate, whether or not it manufactures products or generates revenue. Typical G&A expenses include rent, utilities, insurance payments, and wages and salaries for administrative and management staff other than salespeople

PRICE Know your local competition. Understand the online market. Assess all of your costs. Determine your profit margin. A/B test your pricing strategy. Consistently review pricing strategies.

PRICES Pricing at a premium: Price products higher than your competition, then, market the value perception and unique features that constitute the premium price. Penetration pricing: Generally used for new businesses or products that can afford to offer a lower price tag to steal attention from competitors. You can label this as a low-introductory deal that will increase as time goes on. Economy pricing: Often difficult for smaller ecommerce businesses, this is basically setting prices low to attract the budget-conscious shopper. Price skimming: For new, unique products you set prices higher, initially. As other competitors enter the market or interest wanes, prices gradually decrease the opposite of penetration method. Psychology pricing:Appealing to the emotion of a shopper by setting illusions of lower prices and better deals. For example pricing at $99 instead of $100, because customers might have a hard time spending past a certain threshold. Bundle pricing:The offer of lower pricing, or a deal when a customer purchases multiple products a type of bulk discount. Bundling works well if you have complimentary products to pair together, you want to move a specific, low-selling product, or your variable costs decrease if you produce more items.

EXCEL APPLICATION Steps 1- Set product fundamentals and parameters 2- Set product volumes 3- Set overheads items 4- Set paid in capital and other assets 5- Review P&L 6- Review cashflow

REFERENCES https://www.bdc.ca/en/articles-tools/start-buy-business/start-business/start-up-financing- sources https://www.startupdonut.co.uk/business-planning/write-a-business-plan/essential-guide-to- writing-a-business-plan Acknowledgement to Dr. Rania Nafea