Gaza Sky Geeks

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1/20/11
Building Financial Projections
January 21, 2016
Gaza Sky Geeks

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30 second English Lesson
What’s the difference between:
• Too
• So / Very

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30 second Balestinian English Lesson
• Too = excessive, or exceeding what’s good
• So / Very = ‫ااا‬ or ‫اااا‬ (can be good or bad)
“Our application is too good” = doesn’t make sense
“We are too happy we got investment = doesn’t make sense
“I was too late for our meeting. The mentor left the Google
hangout” = makes sense

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Agenda
Business Plan Financials
• A Note on Excel
• What is a Business Model
• Building YOUR Financial Projections

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A Note on Excel
Excel is just a big calculator with operators and functions.
It’s a basic form of coding.
Keep format clean
Some navigation shortcuts:
• Ctrl + [ (also F5 + Enter to go back)
• = starts a function
• +, -, *, /
• Alt + T+U+D and Alt + T + U + T
• Ctrl + arrows keys and Ctrl + Shift + arrow keys
• Ctrl + page up/down

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“I’m too busy to do Financials!”
• It is going to be wrong
• Investors don’t believe them anyway
• I have IMPORTANT things to do
Product
Technology
Customers
Team
etc.

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Here’s Why!
• Financials are the Scoreboard
• They explain your logic and plan to investors
• Understand Your Business
Assumptions
Drivers
Milestones
Exposures/Risks
Failure to plan is planning to fail

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“But I don’t know the cost!”
• Ask someone who knows or make an educated
guess!
• Startup financials are all assumptions
• The points is not accuracy, but showing investors
your logic
That you have thought about all costs
That you understand how a business works
That you have researched pricing, salaries, etc.
Financial show how KEY ASSUMPTIONS fit
together to create a business that MAKES
MONEY

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The Startup CEO Role
• Job #1
Maintain oxygen supply!
• You’re not an accountant but need to
understand
Selling Price
Gross margins
Cost of product development
Sales & Marketing strategy & expense
Start-up and/or Capital Expenses

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Income Statement Example
For a generic technology company
Sales (Revenue) $ 50.0 100% After discounts
Cost of Goods Sold (COGS) $ 20.0 40% Direct & indirect costs but NOT development
Gross Profit (Gross Margin) $ 30.0 60% Sales minus COGS
Sales & Marketing (S&M) $ 15.0 30%
Product Development $ 5.0 10%
General & Admin (G&A) $ 2.5 5% Rent, Accounting, HR, IT
Total Expenses $ 22.5 45%
Operating Profit $ 7.5 15% Gross Profit minus Total Expenses

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The Business Model
• Provides the structure for the Financial Plan
• Blueprint of how your business will MAKE MONEY
• Documented by an Income Statement

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Business Models - Retail
Wal Mart Target Nordstrom
Revenue 100% 100% 100%
COGS 76% 66% 63%
Gross Margin 24% 34% 37%
R&D 0% 0% 0%
SGA 18% 23% 27%
Expenses 18% 23% 27%
Op Profit 6% 11% 10%
Annual Revenue $344B $59B $8.5B
Employees 1.9M 352k 53k
Rev per Emp per Yr $181k $167k $160k

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Business Models - Restaurant
McDonalds Wendy’s Starbucks
Revenue 100% 100% 100%
COGS 68% 76% 42%
Gross Margin 32% 24% 58%
R&D 0% 0% 0%
SGA 11% 14% 42%
Expenses 11% 14% 42%
Op Profit 21% 11% 16%
Annual Revenue $21B $2.2B $9.4B
Employees 465k 46k 144k
Rev per Emp per Yr $45k $48k $65k

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Business Models – Tech Hardware
Cisco EMC Dell MedTronic
Revenue 100% 100% 100% 100%
COGS 36% 47% 83% 26%
Gross Margin 64% 53% 17% 74%
R&D 13% 11% 1% 10%
SGA 26% 29% 10% 34%
Expenses 39% 40% 11% 44%
Op Profit 25% 13% 6% 30%
Annual Revenue $35B $11B $57B $12B
Employees 61k 31k 90k 38k
Rev per Emp perYr $573k $358k $633k $323k

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Business Models – Tech Software
Microsoft Oracle SAP
Revenue 100% 100% 100%
COGS 19% 23% 34%
Gross Margin 81% 77% 66%
R&D 13% 12% 14%
SGA 24% 30% 25%
Expenses 37% 42% 39%
Op Profit 44% 35% 27%
Annual Revenue $51B $18B $12B
Employees 79k 75k 43k
Rev per Emp per Yr $645k $240k $288k

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Business Models – Internet
Apple Google Facebook Zynga LinkedIn Open Table Pandora
Revenue 100% 100% 100% 100% 100% 100% 100%
COGS 56% 35% 25% 27% 15% 27% 62%
Gross Margin 44% 65% 75% 73% 85% 73% 38%
R&D 2% 14% 10% 31% 23% 9% 4%
S&M 12% 11% 13% 30% 19% 22%
G&A 6% 9% 10% 11% 21% 14% 12%
Total Expenses 9% 34% 31% 56% 74% 42% 38%
Operating Profit 35% 31% 44% 17% 11% 31% 0%
Annual Rev (M) $156,508 $37,905 $5,048 $1,140 $522 $139 $274
Employees 75,000 32,500 4,300 2,850 2,100 550 530
Rev/Emp (000) $2,087 $1,166 $1,174 $400 $249 $253 $517

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Building a Tech Model
• What is your product
 Price that customer will pay
 Cost of Goods Sold- Unit costs & mfg O/H & support
• Distribution Strategy
 May impact your sales price
 May impact marketing and support expenses
• Product development should end up at 10% to 20%
• General & Admin should end up at 5% to 15%
• Target an operating profit of 15% to 20%

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First Major Decision:
How will you sell your product?
Direct Sales Force
Revenue $100 100%
Cost of Goods Sold $40 40%
Gross Margin $60 60%
Sales & Marketing $23 23%
R&D $12 12%
G&A $5 5%
Total Expenses $40 40%
Operating Profit $20 20%

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First Major Decision:
How will you sell your product?
Direct Sales Force
Revenue $100 100%
Cost of Goods Sold $40 40%
Gross Margin $60 60%
Sales & Marketing $23 23%
R&D $12 12%
G&A $5 5%
Total Expenses $40 40%
Operating Profit $20 20%
Distributor / Publisher
$80 100%
$40 50%
$40 50%
$8 10%
$12 15%
$4 5%
$24 30%
$16 20%
Example - Distributor receives a 20% discount in return for
Sales & Marketing efforts

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Building Financial Projections
Technology Company Rules-of-Thumb
• Average employee salary will be $90K + -
• Employee benefits will add just 15%
• Salaries will be 60% to 70% of total expenses (non-COGS)
 Remainder will be rent, utilities, travel, etc.
 UNLESS you have extraordinary marketing!!!
 Will reduce to 50% to 55% over time
• Sales staff will cost $175 to $250k per person per year
 ~$200k compensation (50% base, 50% commission)
 $50k in annual travel costs
Staffing DRIVES departmental expenses
Disclaimer - May not apply to your company

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Building Financial Projections
Technology Company Rules-of-Thumb
• Sales Projections
$50MM to $100MM in year 5
• Revenue per Employee
Between $150K and $350K
• Revenue per Salesperson
Between $1MM and $3MM
Disclaimer - May not apply to your company

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Case Study:
Restaurants 12,300 (’09) -> 15,200 (’10) +2,900
Diners Seated 43M (’09) -> 65M (’10)
Subscription $44M
Reservations $48M
Installation $7M
TOTAL $99M
Expenses Staff
Operations $27M 27% 166
Sales $20M 20% 160
Product Development $11M 11% 96
Gen. & Admin. $15M 15% 71
TOTAL $73M 73% 493
Operating Profit $26M 26%

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Case Study:
Subscription $44M (13,750)  $260/month
Reservations $48M (65M)  60 cents/diner
Installation $7M (2,900)  $2,400 per install
TOTAL $99M
Revenues $99M/year - $200k revenue per employee/year
Expenses $73M/year - $148k expense per employee/year
- Estimate: salaries are 66% of expenses  $100k avg salary
No print, broadcast, or online ads. Search Engine Positioning
If Sales Staff = 160  $125k annual expense per staff member
If Sales Staff = 80  36 restaurants per rep/year (50% staff sell)
Only $311k revenue per sales staff
RED FLAGS
Target market - 20,000 restaurants (vs 15,200 already installed)
Opportunity – 700M diners (vs 65M)

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Case Study:
Customer Acquisition v Customer Value
Acquisition Cost* (CAC):
$20M for 2,900 customers = $6,900 average per customer
Customer Lifetime Value:
Installation Fee $2,400
Subscription Fees 12 * $260 $3,120
Per-Diner Fees (394/month) 12 * $236 $2,836
Total Year 1 $8,356
Total year 1-5 $70,560
* Sales & Marketing ONLY

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CAC and LTV

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CAC and LTV
• LTV > CAC.
 (LTV should be about 3 x CAC for a viable SaaS or other form
of recurring revenue model. Most of the public companies like
Salesforce.com, ConstantContact, etc., have multiples that are
more like 5 x CAC.)
• Aim to recover your CAC in < 12 months, otherwise your
business will require too much capital to grow.

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CAC and LTV

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Case Study:
KEY BUSINESS DECISIONS
Who Pays? Restaurant, diner, advertiser?
What would they pay for?
- Restaurant: Installation, Monthly fee, Volume based fee
- Diner: Per Reservation Fee
- Advertiser: CPM
How Much Do They Pay?
- Installation $2,400
- Monthly fee $260
- Volume based fee $0.60/diner
Other Decisions
- No Advertising but Customer Bonus (frequent diner plan)

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Cash Flow Projections
Happiness is a positive cash flow
Or at least knowing when you need to raise more
• Burn Rate
 Monthly operating loss plus capital expenditures
• Cash Flow Projection
 Cumulative operating losses excluding depreciation
 Plus cumulative capital expenses
• To determine the total cash required
 Cumulative operating losses PLUS
 Cumulative capital expenses
 On the month that you turn cash positive

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How Much to Pay Yourself
• Investors don’t want their entrepreneurs to starve
BUT
They want them to be hungry

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End Result
5 year Profit and Loss Statement

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Executive Summary
Presentation Suggestions
• Annual Profit and Loss Statement for 5 years (with %)
• Data to justify revenue projections
Unit sales
Average selling prices (ASP)
• What quarter you will be profitable
• Your total cash requirement

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Executive Summary
Presentation Suggestions
• Annual Profit and Loss Statement for 5 years (with %)
• Data to justify revenue projections
Unit sales
Average selling prices (ASP)
• What quarter you will be profitable
• Your total cash requirement

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1/20/11
Introduction to Startup Legal
Issues for Gazan Startups
Part 1
April 4, 2016
Gaza Sky Geeks
Pre-Acceleration Bootcamp

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Disclaimers
This is where it starts getting serious, and there can be real
consequences for your errors. There is a lot of detail you
must manage, and it is a big responsibility.
•GSG is not your lawyer or accountant
•GSG is not responsible for your legal or financial decisions
•You should seek professional legal and accounting advice
•GSG can make introductions to local and international
advisors, who may provide free services, but may require
fees

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Agenda
• Deliverables for tomorrow
• Responsibilities of forming a company
• Options for incorporation for Gazans
 Pros/Cons of Ramallah
 Pros/Cons of Delaware
• Equity splits between the team
• Book keeping

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Responsibilities
• Cost of incorporating
• Preparing Tax Forms and Fees ON TIME
 Sales Taxes/VAT
 Payroll Taxes
 Income Taxes
• Detailed Accounting Requirements
• Detailed Documentation Must be Kept
 Invoices
 Receipts
 Employment Agreements
 Contracts
• For Gazas especially:
 Vigilant OFAC Compliance if you are incorporating in USA

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Why Incorporate?
• Limits personal liability of team
• Allows for receipt of investment capital
• Professionalizes your business
• For Gazans especially
 No other option for international business
 Access to foreign bank accounts and payment platforms
 Limiting liability of sanctions
 Need to be EXTRA professional with customers, suppliers

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When to incorporate?
• Typically we encourage incorporation only if have
received a significant investment offer
 Costs can be several thousand dollars, and you will pay hundreds
of dollars per year
• You are getting traction and urgently need access to
international financial services, AND
 YOU BELIEVE YOU CAN PAY THE COSTS AND MANAGE THE
RESPONSIBILITIES OF INCORPORATION WITHOUT AN
INVESTOR

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Incorporation Jurisdictions
• Ramallah (via power of attorney documents)
• Delaware (via Stripe Atlas)
• Gaza is not an option if you want to do business abroad
• To establish a company AND foreign bank account, you
almost always must travel and visit banks/ministries IN
PERSON. The above options are exceptions.
• Other potential options (we aren’t sure/you must travel):
 Jordan
 UAE
 British Virgin Islans

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Ramallah Pros/Cons
• Pros
 We know the process, it’s straight forward
 It will be easier for you to understand as Palestinians
 Once incorporated, you can set up a business account with Bank
of Palestine that accepts international wire transfers
 Can use Bank of Palestine Payment Gateway for visa/mastercard
• Cons
 Requires physical documents, Ramallah lawyers (Itqan, Shehada
Law, Sharhabeel)
 Few Palestinian lawyers understand startups or tech
 Professional investors outside of Palestine won’t like it because
the law here does not protect them adequately
 Vesting agreements not enforceable
 Still limited access to regional payment gateways, PayPale, Stripe

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Delaware Pros/Cons
• Pros
 Stripe Atlas is a one stop shop that has WAIVED the $500 setup
fees
 Stripe also provides some free tax and legal advice
 Access to a US bank account at Silicon Valley Bank without in-
person ‘KYC’ interviews
 With US account, access to many payment platforms like Stripe,
Paypal for card processing
 Investors will be comfortable with Delaware
• Cons
 Stripe may deny your application
 Still limited access to regional payment gateways (Payfort)
 VERY INTENSIVE DOCUMENTATION AND PAPERWORK, AND
LONG TERM RESPONSIBILITY FOR TAX REPORTING
 You are exposed to US laws and regulations, which are extensive
and complicated
 You must be extra careful with OFAC requirements

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Ramallah Registration
• Power of Attorney Costs
• The fees for each company are as follows:
• 10 JD (representing 0.1% of the registered share capital
of the minimum allowed 10,000 JD)
• 540 NIS as registration fees to Ministry of National
Economy
• 715 JD Palestinian Bar Association fees
• At least 10,000 JD of capital must be deposited into the
companies bank account in the first six months

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Delaware Registration
• Setup:
 To file the certificate of incorporation in Delaware, the cost will be
about $450 in filing fees, including the fees for the name
reservation.
 Via Stripe Atlas, $500 fee is waived to incorporate the company
 Typically, $1000 for purchase of 10,000,000 founders shares at
$0.0001 per share (I’m not sure what Stripe’s arrangement is)
• Annual:
 $350 Delaware franchise tax due March 1 each year, but
increases as company grows
Appoint a third party to be the Company’s registered
agent who charges $130 per year for their services

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Equity Splits
• Who are the founders vs. the employees vs. the
contractors?
 Execution has greater value than the idea.
 Ideas have no value
 Forget about the past.
 Who is in 100% for long term?
• Plan to set aside 10% of shares as an option pool for
future employees
 What are options?
 An agreement that someone can purchase shares at a set price in
the future

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Board Formation
• All companies have Boards of Directors that must vote on
major decisions of the company
 Key employee hiring
 Fundraising
 Major expenditures
 Major contracts
 Any changes to the bylaws of the company
• Initially, the board may be whoever you want to appoint
• If you receive equity investment, investors will most likely
demand a board seat and decision making power

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Book Keeping

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An Investor or the IRS Asks:
• “Your books show a revenue item for $12,000 on
December 3rd, 2012. Substantiate it in an appropriate
level of detail.”
• What do you do?
• (Note that backfilling written records from e.g. credit card
statements is not acceptable)

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Invoices
• Typically, an invoice will include:
• An itemized list of the goods or services purchased, with
minimal detail about them
• A unit price and quantity for each line item
• A subtotal
• Any sales tax assessed
• The total amount invoiced
• The total amount actually due, if not the same as the
amount invoiced (i.e. if the customer has already paid a
portion of the invoice)

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Receipts
You should offer customers a written receipt for every transaction
with you, particularly for transactions which are settled instantly
(via, e.g., a credit card) or otherwise not invoiced.
•Typically, you’ll write on them:
•Your business’ name and address
•An itemized list of what was purchased, in minimal detail
•A subtotal
•Any sales tax assessed
•The total amount paid
•The date and time of purchase
•How the payment was made (“credit card with last digits 1234” is
common)
•The customer’s name
•A reference number for you to find the transaction later
•Instructions for the customer if they have a question about the
purchase

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Deliverables – Legal
• Docs:
 Incorporation Template Delaware (incl. Founders Equity Shares)
 Incorporation Template Ramallah (incl. Founders Equity Shares)
 Power of Attorney Template – Gaza to Ramallah
 Privacy Policy
 Terms of Service
• Excel: Budget for Cost of Incorporating in Ramallah and Delaware
• Excel: Books:
 List of all your actual expenses to date (item, date, purpose, payment method) =
how much you’ve spent
 List of all your actual revenue collected to date (item, date, customer, payment
method)
 Set up a Receipts@ address and email said@gazaskygeeks.com
 Set up a folder for every document you have- send link to
said@gazaskygeeks.com

52. Nuts
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1/20/11
Introduction to Startup Legal
Issues for Gazan Startups
Part 2
April 4, 2016
Gaza Sky Geeks
Pre-Acceleration Bootcamp

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Disclaimer
Again, this is where things get more serious. You are
accepting other people’s money and they will want more
money back than they gave you.
•GSG is not your banker, but we can give you our opinion
•We cannot negotiate on your behalf directly, only advise
you and give you mentors who can advise you
•GSG provides you the introductions and connections, but
the relationship with the investor is between you– GSG is not
the middle man
•YOU MUST THINK OF YOUR RELATIONSHIP WITH THE
INVESTOR AS A MARRIAGE. IT IS A LONG TERM
PARTNERSHIP
•Investors have no obligation to invest in you!

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Agenda
• Who are GSG ‘Investors’?
• Investment Process
 Pitch
 Term Sheets
 Incorporation (if not already done)
 Finalization of Detailed Agreements
 Disbursement to bank account
 Regular Meetings with Investors

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What is investment?

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What is investment?
• Investment is not a grant
• Investment is capital provided that fuels the growth of the
business
• Equity is the ownership stake an investor receives when
they inject investment into you company
• As your company grows, their investment grows
• Investors will get their money back, plus their share of
increased value, when the company is sold

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Who are some investors?
• GSG has a wide network of supporters who might be
interested in hearing you pitch
• Venture Capital Funds
 Ibtikar Fund - Palestine
 Oasis 500 - Jordan
 Conversations Fund - Europe
• Companies
 APIC – Palestine/Jordan
• Individual Angel Investors / Mentors who want to see you
succeed

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Investment Process
• Setting up the meetings
 GSG will send a package of materials about your startup to our
network
 GSG will help you establish meetings with any interested investors
in late April
• You pitch to the potential investors via Skype
 Product Demo
 Pitch
 Ask for $ to achieve your acceleration milestone
• As ‘Pre-Seed Stage’ startups, you can expect an
investment size of around $20K to $40K for initial
validation

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What Should You Ask For?
• Your $ ask should allow you to reach a major milestone related to
customer acquisition that you will work on during acceleration (through
September)
• Basically, think of it as if you have $40k to test the core hypothesis of
your business
• If you can achieve this milestone, your business has probably traction
and may continue to grow
• If you CAN’T achieve this milestone, it likely means that your startup is
over and you should focus on something else
• What will it cost you to achieve this milestone over the next six months?
 This is your operating budget, and a core deliverable
• Milestone has clear # targets you must hit

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Example
• In six months, successful traction means growing active
users 200% per month to reach X paying customers with
a revenue target of $Y and a clear trajectory to a CAC of
$Z or less
• The Milestone must give you and your investors a clear
indication that this business COULD be profitable and
grow rapidly  you prove that there are MANY potential
customers out there who love your product and will love
your product

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Three Documents to Show
Investor
• 1) Operating budget for acceleration
 Six months forecast of how you will spend money 
 Ties to six months forecast of visitors, users, conversion, and revenue
 No Templates!  Must reflect your specific business model
Plus…
• 2) Five-Year Long Term Forecast
 How do you see the business and market potential long term?
• 3) Management Dashboard Sheet
 12 KPIs that track the health of your business

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If an investor is interested
• You will discuss a TERM SHEET
• A term sheet is a document– it is a non-binding
expression of interest that lays our the basic terms of the
investment
• Terms of an investment will include:
Valuation of the company (or not)
Investor Rights
o Board Seats
o Information Rights
o Rights in Future Financings

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If you get to the term sheet
stage, congrats, but your
work is just beginning!

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Building Financial Projections
Part 2
April 4, 2016
Gaza Sky Geeks
Pre-Acceleration Bootcamp

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1/20/11
Deliverables – Financial
• Operating Budget for 6-12 months based on YOUR BUSINESS
MODEL
• 5 year Long Term budget (can use template or make your own)
• Management Dashboard Sheet

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Agenda
• Excel Warmup
 Instal TTS Macros
• Operating Budget
• 5 Year Long Term Forecast
• Management Dashboard Sheet

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Bolts
1/20/11
A Note on Excel
Excel is just a big calculator with operators and functions.
It’s a basic form of coding.
Keep format clean! Blue for hard code
Some navigation shortcuts:
• F2 is your best friend
• Ctrl + [ (also F5 + Enter to go back)
• = starts a function
• +, -, *, /
• Alt + T+U+D and Alt + T + U + T to trace links
• Ctrl + arrows keys and Ctrl + Shift + arrow keys
• Ctrl + page up/down
• Ctrl + Shift + $ for currency
•

68. Nuts
And
Bolts
1/20/11
Long Term Forecast
• Your Five Year Forecast can be GUIDED by a template
• All the inputs all need to have a justification behind them,
because investors will ask:
 CAC
 Marketing Spending (Cost per Click)
 Product Development Costs (Developer Salaries/Licenses)
 User Growth
 Conversion Rates
 Repeat purchase assumptions
 Retention / Churn Rates
 Virality (organic traffic from referrals/shares)
 Pricing (Subscriptions, Ad Views, Orders, In App Purchases…)
 Salaries
 Operating Costs
 Many others depending on your model
o E.g. time on site if ad-based

69. Nuts
And
Bolts
1/20/11
Long Term Forecast
• Your Five Year Forecast can be GUIDED by a template
• Spend time in the templates to understand the basic
structure of the three major business models
 Ecommerce
 Mobile Applications
 Subscriptions (SaaS)

70. Nuts
And
Bolts
1/20/11
Long Term Forecast Templates
• Ecommerce Template Group
 Munasibat
 Izaari
 Kookies
 Piclancers
• Mobile App Group
 Mommy Helper
 Keeflabs
• SaaS Group
 SubOpp
 VidMass
 Tashbeak

71. Nuts
And
Bolts
1/20/11
Management Dashboard Sheet
• You Must Provide around ~12 KPIs that are most
important for measuring the health of YOUR
BUSINESS on a daily, weekly, monthly basis
 Conversion Metrics(visitors, registrations, time on site, bounces,
daily/weekly/monthly active users…)
 Revenue
 Costs
 Marketing
 Product
 Cash
• YOU MUST DEFINE EVERY METRIC IN DETAIL,
ESPECIALLY USER METERICS
 E.G. We define monthly active users as anyone who interacts
with our application at least once in the past month
 E.G. We define