dcfi revenues van pelt

7/30/2019 DCFI Revenues Van Pelt

http://slidepdf.com/reader/full/dcfi-revenues-van-pelt 1/13

Or, what you need to know toconvert your sexy, exciting, can’t-help-but-lead-to-world-dominance

product vision into an actualcompany

The Financial Perspective onStarting a Business



Accounting is boring. . .until it’s your money

Balance vs. flow The basic financial statements

Income statement: revenue and expenses

Balance sheet: assets, liabilities, equity

Cash flow statement**: how much did your cashchange and why Income or loss

Timing, e.g., accounts payable or receivable

Investment

Someone else invested in you (equity)

You invested in assets (capital expenditures)

**most important and least understood



Other terms you’ll hear

Run rate: A metric as of a point in time extrapolated to an annual

future rateExample: you have annual revenue of $1m in 2012, $400k of which

was in December.

Revenue run rate is $4.8m/year ($400k/mo for 12 months)

What the business should do next year based on mostrecent period results

Different from projections which assume additional changesover the course of the coming year (e.g. adding more salespeople, additional customers, etc.)

Burn or burn rate How much cash your business is consuming

Can be used in combination with run rateExample: you used $500k of cash in 2012 and $75k in December.

Your cash burn has a run rate of $900k ($75 x 12)



Those Pesky Revenue Models

Definition: why do customers give you money Single most important thing to know or figure out

about your business

A good revenue model is:

Specific—see following list

Scalable

Affordable

Measurable/projectable

Get one that works before you expand into others



Web/mobile revenue models p1

Advertising

•Display Ads - ex. Yahoo! •Search Ads - ex. Google •Text Ads - ex. Google •Video Ads - ex. Hulu •Audio Ads - ex. Pandora •Promoted Content - ex. Twitter,Tumblr •Paid content links - ex. Outbrain •Recruitment Ads - ex. LinkedIn •Lead Generation - ex.MoneySuperMarket, ZocDoc •Affiliate Fees - ex. Amazon AffiliateProgram •Classifieds - ex. Craiglist •Featured listings - e.g. Yelp, SuperPages; •Email Ads - as done by Yahoo, MSN •Ad Retargeting - ex. Criteo•Real-time Intent Ad Delivery •Location-based offers - ex/ Foursquare •Sponsorships / Site Takeovers - ex.Pandora •Wait time screenfillers e.g.Wetransfer.com•Sponsored transaction (bank/loyalty)

statements ex. VEMT

Subscription

•Software as a Service (SAAS) - ex.Salesforce •Service as a Service - ex. Shopify •Content as a Service - ex: Spotify, Netflix •Infrastructure/Platform As A Service - ex.AWS •Freemium SAAS - ex. Dropbox •Donations - ex. Wikipedia •Sampling - ex Birchbox •Membership Services - ex Amazon Prime •Support and Maintenance - ex 10gen,Red Hat •Paywall - ex. NYTimes •Voice and video-conferencing - ex.Uberconference Peer to Peer •Peer-to-Peer Lending - ex. Lending Club, •Peer-to-Peer Gambling - ex. BetFair •Peer-to-peer buying - ex Etsy •Peer-to-peer insurance/home/car - ex(??) •Peer-to-peer computing (CrasPlanstorage, or SETI@home) •Peer-to-peer service - ex. MechanicalTurk, TaskRabbit •Peer-to-peer Mobile WiFi/Tethering - ex

(??)

Commerce

•Retailing - ex. Zappos •Marketplace - ex. Etsy •Crowdsourced Marketplace - ex.Threadless •Excess Capacity Markets - Uber,AirBnB •Vertically Integrated Commerce -ex. Warby Parker •Aggregator - ex. Lastminute.com •Flash Sales: Gilt Groupe, VentePrivee •Group buying - ex. Groupon •Digital goods / downloads - ex.iTunes •Virtual goods - ex. Zynga •Training - ex. Cloudera (??), ->Coursera •Pay what you want - ex. Radiohead •Commission - ex. SharesPost •Commission per order - ex.Seamless, GrubHub •Auction - ex. eBay •Reverse Auction - ex Priceline •Barter for services ex. SwapRight



Web/mobile revenue models p2

Mobile

•Paid App Downloads - ex.WhatsApp •In-app purchases - ex. ZyngaPoker •In-app subscriptions - ex. NYTimes app •Advertising - ex. Flurry, AdMob •Digital-to-physical - ex. RedStamp, Postagram

Gaming •Freemium - Free to play w/ virtualcurrency - ex. Zynga •Subscription- ex. World ofWarcraft •Premium - ex. xBox games •DLC - (Downloadable Content) -ex. Call of Duty •Ad Supported - ex -addictinggames.com

SubscriptionTransaction

processing •Merchant Acquiring - ex. PayPal(Online / Offline), Stripe (Online),Square (Offline) •Intermediary - ex. IP Commerce(POS 2.0), CardSpring •Acquiring Processing - ex.Paymentech •Bank Transfer - ex. Dwolla •Bank Depository Offering - ex.Simple, Movenbank (spread onaverage deposits) •Bank Card Issuance - ex. Simple(interchange fee per transaction) •Fullfilment - ex. Amazon •Messaging - ex. Peer-to-Peer SMS,IM, Group Messaging •Telephony - ex.termination/origination in publictelephony networks (skype out/in) •Telephony - ex.termination/origination within privatetelephony cloud (e.g. native skype) •Payment Gateways: Mobile -ex.Braintree •Platform Monetization ("Tax") -

Facebook Credits; iO6 30% cut.

Licensing

•Per Seat License - ex. Sencha •Per Device/Server License - ex.QlikView •Per Application instance - ex. AdobePhotoshop •Per Site License - ex. Private cloud oninternal infrastructure •Patent Licensing - ex. Qualcomm •Brand Licensing - ex. Sesame Street •Indirect Licensing - ex. Apple VolumePurchasing Data •User data - ex. BlueKai •Business data - ex. Duedil •User intelligence - ex. Yougov •Search Data - ex. Chango •Real-time Consumer Intent Data - ex.Yieldbot •Benchmarking services - ex. Comscore •Market research - ex. GLG



Cost structure

It’s critical to distinguish different types of costs: Fixed costs:

do not change very much as revenue increases

Usually change as a step function vs. linear

Example: office space Semi-variable: change is somewhat correlated with

changes in revenue

Variable: change is highly correlated with changes in

revenue (subject to economies of scale) Example: sales commission



Financial models

Your model is only as good as your revenue projections Build a model based on business drivers and ratios not

the line items in your financial statements

Thoroughly analyze the items that matter . . . Bad: Revenue will increase 20% next year

Better: we will add 1 sales person in March and one in July. Salesproductivity ramp-up pattern is 0% in months 1 & 2, 20% month 3, 50%month 4. On average, a fully productive sales person will close x dealsper month worth an average of $y, subject to monthly seasonality

percentages as defined.

. . . And use quick approximations for those that don’t Example: come up with an overall facilities rate per employee rather

than separately estimating office supplies, network, phone cost, etc.



Profits

How profitable should you be?One of the hardest decisions at any stage of a business

How much to invest in your product up front

How long to bootstrap/when to consider outsidecapital?

When and how much to scale sales/marketing?



Profits – some guidelines

Product development Minimum valid test—first build only what you need to

get a valid sense of demand

Minimum marketable features—next build just enough

that you can sell it Roadmap—identify and prioritize enhancements

/extensions as you can pay for them (either organicallyor through outside capital)

Rationale Customer feedback (early and often) is invaluable

Distinguish ‘like to have’ versus ‘will pay for’

Asking for money enforces discipline from day 1



Profits – some guidelines

Bootstrapping vs outside capital? Bootstrap until you have empirical support for the

business drivers behind your financial model Usually means a few customers, some sales funnel metrics, and

basic sense of variable costs

Raise capital to go faster once you prove the model

Ideally, raise capital to cover variable cost of growthversus fixed cost of base business

When and how much to scale sales/marketing? Prove and refine on a small scale first

Push vs. pull demand generation Determines if sales supports marketing or vice versa



Case Study – Echo360

Concept grew out of failed attempt at retail product $10m outside capital, no viable business case

Segment analysis, identified potential targeted usecase in higher education

Mad investors, no experience in higher ed, now what? Phase I – Validate demand (& ignore economics)

Secured $300k to build a prototype (mvt)

Identified 10 pilot prospects; 30% close rate (validated

demand phase 1) Secured $500k to extend to a usable beta and closed

initial sales with 2/3 pilots (mmf)

Hired 1 sales rep, closed 5 deals



Case Study – Echo360

Phase II – Validate business model $5k initial order size, $22k variable cost of customer

acquisition--Good long term business but not scalable

Brought down cost of customer acquisition to $10k Sales tools: Webex meetings vs. on-site visits Implementation tools: Installers, AV surveys, documentation

Increased average initial order to $10k 3 for 2 program—get 3 classrooms for the price of 2

85% of customers bought the bundle

Variable cost now = initial revenue

Secured commitment for $3m/year from investors tocover fixed costs (development, conferences, etc.)

Scaled like crazy—400 colleges in 3 year

dcfi revenues van pelt

Documents