CorporateViews - Entrepreneurship

As money is the most important factor that determine the health of a
company, it is thus necessary to carry out a brief evaluation of the projected
financial status of the startup.

Business Model

One of the very first questions entreprenuers should always ask themselves
before embarking on any business venture is "What is the business model?"
(i.e. "How do we make money?")

Is it through direct selling, wholesaling, licensing, franchising, etc?

One good way to aid the determination of the business model is to analyze
the current supply chain. By identifying the niche which you would like to
serve on the supply chain, an appropriate business model can be selected to
capitalize on the business opportunity.

Financial Forecast

How do we know how much money we need for the startup?

How do we determine the potential earnings of our business idea?

To answer these 2 questions, we will need to calculate the financial
projections of the startup for the first 5 years of operations.
Here, a simple forecast of the Balance Sheet, Income Statement (P & L) and
Cash Flow Statement over the next 5 years will be required.

To help ensure the survivability of your business, the burn rate of the
company will have to be determined so as to ensure sufficient cash flow
within the organisation.

If venture capital funds are needed, a minimum projected revenue of around
USD 50 million within 5 years will be necessary.

Valuation

Valuation calculations are generally required only for fund raising activities
that involves angel investors, VCs, banks and governmental organisations.

Methods of determining company valuation include:

1. Price to earnings (P/E)

2. Dividend Yield

3. Multiple of Book Value

4. Comparable companies

5. Discounted Cash Flow (DCF)

Here, we note that the valuation of the startup will also be dependent on the
stage of development of the company.

For seed stage companies, the valuation can varies around USD 2 ~ 4
million.

Amount of Funding vs Equity offered

Raising funds has always been one of the most difficult tasks when starting a
business.
The most common ways to raise funds nowadays are:

> Own money (OM)

> 3 "F" = Family, Friends & Fools

> Angel Investors

> Venture Capitalists (VCs)

> Banks

> Incubators

> Governmental Organizations

For seed stage companies, USD 0.5 ~ 1.5 million should be raised with
around 15% ~ 30% of equity offered.

Use of Proceeds

To justify the amount of funds to be raised at seed stage, we will have to
state what are the planned uses of proceeds and how are we going to use
the funds to promote company growth.

If external funding are to be obtained, big salaries for founders are certainly
not encouraged (as founders are expected to work mainly for equity at the
seed stage).

Exit Strategy

To entice investors to invest in the startup, it is important to offer the
investors a well planned and feasible exit strategy so that they can realise
the returns they have made from their investments.

Common exit strategies include equity-to-cash conversion, IPO, trade sale,
etc.

The exit strategy can be planned to be carried out after 3 ~ 5 years with a
targeted return on investment (ROI) of around 30 ~ 100 times.