techba workshop
TRANSCRIPT
Financial aspects of setting up a company in
the USPresented to:
The TechBA Acceleration PlanFor
3rd Generation CompaniesBy:
Edward “Bud” Austin
www.kranzassoc.com
The Financial Aspects of Setting Up a company in the US
What needs to be done• Hire Your Interim CFO• Determine Department Structure• Set up a Chart of Accounts• Purchase General Ledger Software
– Quick Books
– Peachtree
• Develop a Cash Management Program• Establish Key Vendor Relationships• Develop a Financial Plan• Planning and Budgeting
What needs to be done
• Establish Consistent Reporting Formats
• Establish Filing System
• Establish Policies and Procedures
• Establish Employee Benefits Program
• Establish Stock Management Program
• Establish Contract Management Program
• Establish Revenue Recognition Plan
Hire your interim CFO• Why Hire a CFO
– Experience– Contacts– Obtain a known quantity– Team player– Strategic Contributor
• Check References– Prior CEO’s– Venture Partners– Industry Experts
Develop a Financial Plan
• The financial plan translates the business plan into financial terms
• Requirements– Establish a department structure– Establish Chart of Accounts– Set-up Accounting System
• Quick Books• Peachtree
– Format Reports
Determine Department Structure
• Development
• Marketing
• Business Development
• Sales
• G & A
Set-up Chart of Accounts
• Establish a numerical chart with department and standard account structure– First two digits = department number– Last four digits = account number
• Allows for consistent reporting of financial activities
Planning and Budgeting• Define Goals and Objectives
– Corporate– Department
• Bottoms-up Budget– Start with department level salaries and build up from
there– Roll up expenses into:
• Income Statement• Balance Sheet• Cash Flow• Headcount • Waterfall• Capital Expenditures
• Obtain Board Approval
Purchase Accounting Software
• Key Features– Low cost– Ease of use– Requires disciplines for cash management,
revenue and expense management– Reporting structure– Analytical ability
Establish Consistent Financial Reporting Package
• Monthly and Quarterly Reporting
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Waterfall Report
• Actual vs. Budget Variance
Cash Management System
• Establish Authorization Matrix– Two signatures over $10,000– Establish authorization levels
• Managers = $ 1,000
• Directors = $5,000
• VP’s = $10,000
• CEO = > $10,000
• Paper documentation for all activities
Establish Key Vendor Relationships
• Banks
• Venture lending
• Insurance – General Corporate– Employee Benefits
• Payroll Service – ADP– TriNet -
• CPA Firm – Tax filings
Set-up Filing Requirements
• Personnel Folders
• Personnel Files
• Corporate
• Accounting
Establish Policies and Procedures
• Disbursements
• Travel & Entertainment
• Capitalization
• Hiring Practices
• Purchasing
• Option Management
Establish Employee Benefits Program
• Salary Structure
• Vacation and Sick Policy
• Medical, Dental, and Vision Plans
• 401K Plan
• Flexible Spending - Sec.125 Cafeteria Plan
Establish a Stock Management Plan
• Set a Budget
• Set-up a Policy for Issuance, Exercise, and Repurchase
• Set-up “Cap Table” and Reporting Formats
• Obtain Board Approval
Set-up Contract Management Process
• NDA’s
• Development
• Consulting – Draft Standard Agreement
• Customer
• Vendor
Establish a Revenue Plan
• Sales Acceptance Policy
• Sales Order Processing
• Credit Limits
• Revenue Recognition
Venture Lending
When To Look for Debt• Significant capital expenditures needed• Ramping sales creates an increase in AR and a delay in
cash collections, thus impacting working capital• After or in conjunction with Financing• Desire to leverage anticipated spending on proto-typing
and demonstration units• Bridging to Next Round• Cash is needed to finance inventory build up during ramp
up of the business
Types of Debt & Collateral
• Equipment Lines – Equipment Only
• AR Lines – AR Only
• Growth Capital – Blanket Lien, no IP
• Bridge Loan - Blanket Lien, no IP
• Growth or Bridge – Blanket with IP
Key Financial Terms
• “All In” Interest Rate
• Loan Term
• Interest Only Period
• Buy Out Provisions or Back End Payments
• Loan Facility Fee
• Legal Fee
• Warrant Coverage• Merger, IPO terms• Lock up provisions• Right to Invest
• Prepayment Penalty• Interim Payments
Key Non Financial Terms
• Draw Period• Funding Restrictions• No MAC Default• Cash Control Agreement• Cash requirements• Covenants• Reporting
Equipment Line Specific Terms
• Lookback provisions• Draw Period Limitation• Softcosts - 30-50%• FMV Buy Out & Back End
Provisions• Buy Out Notification • Procurement Services• Technology Exchange Programs
Growth Capital Specific Terms
• Blanket Liens
• AR Carve Out
• Cash Control Agreements
• Negative Pledge on IP
• FMV Buy Out & Back End Provisions
AR Specific Terms
• Collateral - AR or Blanket
• Eligible Receivables
• Formula Based Method
• Financial Covenants
• Warrant Coverage
Types of Lenders
• Banks– SVB
– Comerica
– Bridge
– Horizon
• Venture Lenders– Goldhill
– Lighthouse
– WTI
– TriplePoint
– Ritchie
– ATEL
– Pinnacle
– Hercules
Representative Client ListAbeona NetworksAdam VenturesAdspace NetworksAduroAgitarAirplayAllegro NetworksAllocityAmicus VenturesAngel InvestorsApexonApplied MicrostructureArcSightArtemis Medical ProductsAruba NetworksAzeala NetworksBella PicturesBiz360BoldFishBlaze Network ProductsCamitroCaw NetworksClearwellCloudshieldCommunication VenturesCovadCovalent
Rubric SoftwareSanctumSanturScent TechScimagixSecureAllSequence DesignSequoia CapitalSigma NetworksSiNettSkyStreamSylantroTahoe NetworksTalking BlocksTelliumTimeDanceTimestockTollbridge TechnologiesTopioTraianaVisto CorporationVhayuWavionW5 NetworksVUE TechnologiesXrosYelp
Liquid SystemsLongboardLuminate SoftwareLucidEraMarket ToolsMemxMimosa SystemsNag TagNanoGramNexxo Financial (Enviso)nthOrbitObjectivityObongo
OnettaOS GroupPalo Alto NetworksPanascopic/JaspersoftParama NetworksPharsightPowerfilePresidio HealthPreview SystemsQumranetRiverhead NetworksRhapsody Networks
Crosspoint VenturesDigital FountainDiVitas NetworksDot Edu VentureseCastEl Dorado VenturesEntrisphereFocalinkForescoutGarage TechnologiesGossett & GunterGoRemoteGracenoteGranite Global VenturesGreenfield NetworksHyperic, IncInControlInterlaceInvisible ITiPass/GoRemoteJajahKavamKiwi NetworksKoliaKrugleLatitude CommunicationsLipstream Networks