1. January 16th, 2013Financial Modeling & Business Valuation for Start-upsEfrat Kasznik, Founder & President Foresight Valuation Group, LLC

2. Are Accountants and CFOs Killing Innovation? -- New Knowledge Online Magazine, INSEAD, March 7, 2013Foresight Valuation Group 2014 3. About Me: Efrat Kasznik Founder and President, Foresight Valuation Group (Palo Alto, CA), a Silicon-Valley based intellectual property, valuation and start-up advisory firm. Lecturer on IP Strategy, Stanford Graduate School of Business (GSB), MBA elective class; mentor at the Center for Entrepreneurial Studies at the GSB Licensing Executives Society (LES), High Tech Sector - Leadership Committee; Chair, Cloud CommitteeIntellectual property (IP) valuation and strategy expert, with 20 years of experience analyzing IP portfolios for mergers & acquisitions, financial reporting, technology commercialization decisions, tax compliance, transfer pricing, litigation damages and business liquidations. Listed on IAM 300 list of top IP strategists Co-founder, CFO and adviser to startups in the US and Europe, in the fields of telecom, mobile, media, cleantech, nanotech and healthcare. Member of the Astia C-Suite screening committeeForesight Valuation Group 20143 4. Outline Building a Financial Model using CURVE TM UserRollout Revenue Buildup Expense Buildup Startup Valuation & Fundraising WhyValue your Startup? Valuation Example Foresight Valuation Group 20144 5. Whats in a Billion Dollars?Foresight Valuation Group 2014 6. TheTM CURVEFinancial ModelVALUATION for ENTREPRENEURS REVENUESUSERSCOSTForesight Valuation Group 20146 7. Tell Your Story with Numbers 8. Goals for Startup Financial Modeling Manage Investor ExpectationsPass Investor Due DiligenceCreate a 2-Year Operating BudgetForesight Valuation Group 20148 9. Financial Model Flow: Telling Your Story with NumbersUser/Customer Rollout: Model InfrastructureForesight Valuation Group 2014Revenue Buildup: Opportunity for investors/valuation9Cost Buildup: Basis for fundraising 10. User Rollout Foresight Valuation Group 2014 11. 1. User Rollout The User Base is the infrastructure on which the financial model is built: Choose modeling unit Roll out users based on user acquisition strategy (go to market plan, engineering to support number) Benchmark results against target market to estimate penetrationForesight Valuation Group 201411 12. Unit of Modeling Example: User Accounts The modeling unit is the revenue generating unit >> Channel to marketForesight Valuation Group 201412 13. User Rollout Example: Mobile AppsUser rollout trajectory is modeled by Time To A Million downloads, based on other popular applicationsForesight Valuation Group 201413 14. User Rollout Example: Five Year Forecast Company AccountsCompany accounts at end of year 20Year 2 Year 3Year 4 Year 5 0.6 million16Downloads (Millions)Year 118 2.1 million 5.8 million14 12 10 8 6 4 2 10.4 million-0Months From Launch Total Company Accounts (MM) Total Batzu Accounts (MM) 16.4 millionForesight Valuation Group 20145 10 15 20 25 30 35 40 45 50 55 6014 15. User Benchmarking: Top Down Penetration 300.00250.00Internet Users in Latin America (MM)Millions15200.00 Hispanic ownership of mobile devices, US & Mexico (MM)150.00Total Batzu Accounts (MM) Total Company Accounts (MM) 100.0050.00Foresight Valuation Group 201415Oct-17Jul-17Apr-17Jan-17Oct-16Jul-16Apr-16Jan-16Oct-15Jul-15Apr-15Jan-15Oct-14Jul-14Apr-14Jan-14Oct-13Jul-13Apr-13Jan-13- 16. Revenue Buildup Foresight Valuation Group 2014 17. 2. Revenue Buildup Revenues represent the opportunity for investors, and the basis of valuation for early stage ventures Identify user monetization opportunities Focus on top 2-3 revenue sources at the most! Project revenues at least 3 years out (5 if possible) Benchmark results against comparable companiesForesight Valuation Group 201417 18. Sources of Revenue Example: Mobile AppsAdvertising Freemium account UpgradesForesight Valuation Group 201418 19. Advertising Example: A User Session Log InSelect ChannelSelect StoryOpportunity for ad impressionConsume ContentOpportunity for ad impressionWe have assumed that the average account holder will use app about 2 times per week Foresight Valuation Group 201419 20. Advertising Revenue Unit: cost per mille (CPM) The cost of an online advertising campaigns is determined by the total number of impressions (= pages that users see) The impressions are sold as advertising space in units of 1,000 (mille) display ad impressions The rate quoted for impressions is the cost per mille, abbreviated as CPM CPM= the cost for 1,000 display ad impressionsForesight Valuation Group 201420 21. Premium Subscription Example: Revenue Assumptions Upgraded account allows access to additional premium content and other premium features $2monthly subscription price for premium accounts 3% of users become premium subscribers Cost of premium content is 20% of the upgrade subscription Premium accounts will be offered starting in Year 2Foresight Valuation Group 201421 22. Average Annual Revenue per User: Benchmark Analysis Example $30.00$28.56$25.00$20.00$15.00$9.56$10.00$7.04 $5.00$2.96*$3.61$7.50LinkedInPandora$4.84$-TwitterForesight Valuation Group 2014Batzu CompanyFacebook22AOLGoogle 23. Expense BuildupForesight Valuation Group 2014 24. 3. Expense Buildup Expenses represent the basis for fundraising : Direct Cost >> vary with revenues (COGS) Fixed Cost >> mostly payroll (org chart) Other fixed cost: IT, office expenses, marketing, licensing, legal, professional fees Benchmark Cost against expenses, industry ratiosForesight Valuation Group 201424 25. Cost Modeling OverviewCost by Function: Cost of Goods Sold Engineering Sales and Marketing General and AdministrativeForesight Valuation Group 2014Years 1 & 2 are predicted on a monthly basis based on actual assumptions25Years 3 5 are driven as a percentage of revenue using industry normalized ratios 26. Principals of Cost Planning Minimize the overhead (and inventory), and make cost as variable as possible, so you only pay when you make money Funding the overhead, and your working capital gaps, so you dont dilute your shareholdersForesight Valuation Group 201426 27. Payroll Organizational Chart CEODirector of Sales and Business DevelopmentCMOMarketing Director of Marketing and PRChief Content OfficerCOOSales & Business DevelopmentAdministrativeDirector of New Business VenturesCountry Publisher (Mexico)Marketing managerBusiness Development ManagerPR managerBusiness Development ManagerDirector of Branded Content CreationPR managerSales RepresentativeCopywriterSales RepresentativeCopywriterCopywriterCountry Publisher (U.S.)Director of Content CurationCopywriterDirector of Page DesignControllerVarious ConsultantsLegal ServicesProject ManagerDev LeaderContent CuratorBackend DevContent CuratorCopywriterPage DesignerPage DesignerBackend DevPublishing Content CuratorHTML5 DevHTML5 DevKey:To be Hired ImmediatelyForesight Valuation Group 2014Director of OperationsCTOTo be Hired in Year 2To be Hired in Year 3Sitting in Mexico Office27OutsourcedMobile Dev)Graphic DesignerMobile Dev)EngineeringQA AnalystQA AnalystSystem Admin 28. Financial Model Aggregation ExampleForesight Valuation Group 201428 29. Revenue vs. Cost: Five Year Forecast 60.0 49.650.0Dollars ($MM)Breakeven Point 40.0 29.530.028.218.320.0 14.3 10.310.0 4.94.16.61.0 Year1Year2Year3Gross Revenue Foresight Valuation Group 2014Total Operating Costs 29Year4Year5 30. Outline Building a Financial Model User Rollout Revenue Buildup Expense BuildupStartup Valuation & Fundraising WhyValue your Startup? Valuation Example Foresight Valuation Group 201430 31. The Valuation Puzzle Foresight Valuation Group 2014 32. Whats in a Billion Dollars?Foresight Valuation Group 2014 33. Key Performance Indicators (KPI): The New Valuation Fundamentals KPI = Measurable Success Factors> Driving ProductMarket Iteration Cycle Customer Acquisition Cost (CAC) Customer Lifetime Value (LTV) Average Revenue Per User (ARPU) Customer Stickiness Customer Attrition (Churn Rate) Viral Coefficient Conversion Rate Foresight Valuation Group 201433 34. The Startup Valuation SpectrumForesight Valuation Group 201434 35. Series A Funding Example: The Valuation Triangle Cost ModelFunds Raised ($5)Share Given to Investors: 5/20 =25%Company premoney valuation ($15)Challenge: minimizing investors share while not overstating valuation Foresight Valuation Group 201435Revenue Model 36. Valuation Overview: At Exit Point (Year 5) $3.6113.7 MillionAverage Revenue / UserAverage accounts in Year 5Revenue in Year 5$50 Million 5X Exit Multiple$250 Million40%60% Discount Rate Foresight Valuation Group 201436Value in Year 5$24 MillionValue Today: Probability? 37. Industry Standard Discount Rates Seed 80%+Angel Series A 40-60%Series B 30-50%Bridge Sources: 50-70% 25-35%How Venture Capital Works , Harvard Business Review A Method for Valuing High-Risk Long-Term Investments, Harvard Business School 37Foresight Valuation Group 2014 38. Value per User Benchmarks $90.00$80.00$80.00$83.33$75.00$70.00$65.20$60.00 $50.00 $40.00 $30.00$30.00 $17.40$20.00 $10.00*$18.15$18.59TwitterBatzu CompanyYelp$32.83$7.38$InstagramForesight Valuation Group 2014Foursquare Facebook38LinkedInPinterestDropBoxPath 39. About Foresight Valuation Group We Are Foresight Valuation Group, LLC (FVG) is a Silicon-Valley based intellectual property (IP) consulting firm, providing high quality analytical services.We Provide A full suite of services designed to help our clients increase their bottom-line results through valuing, strategically managing and monetizing their IP assets. IP Valuations IP Strategy Litigation Support Business Valuations Economic Analysis Startup AdvisoryForesight Valuation Group 201439 40. THANK YOU! Efrat Kasznik President, Foresight Valuation Group ekasznik@foresightvaluation.com www.linkedin.com/in/ekasznik Office: 650-561-3374www.foresightvaluation.comPresentation available upon request