Meadow - I Love Cash Flow - Autumn 2011

I Love Cash Flow
Clinical Professor Scott F. Meadow

Commercializing Innovation: Tools to Research and Analyze
Private Enterprises
Discipline and Detail help Us Avoid Lifes Little Hazards
Clinical Prof. Scott Meadow

Commercializing Innovation
Entrepreneur and Investor: Issues impairing the partnership

Lack of efficiency in deploying capital to private equity projects
Limited joint development of the projects underlying profit formula
No systematic methodology for forecasting the fixed and variable cost
structure of the enterprise
Difficulty in predicting meaningful milestones for the project
Lack of transparency in the Companys forecasts

Limited analytical support for the long term trajectory of the business
As variances occur, no foundation for editing the business concept

Roll-up Model: Income Statement

(in $ millions)
1
Year
3
Revenue
Homes
Corporate
Total Revenue
4,734
93
$4,827
11,335
315
$11,650
21,494
833
$22,327
38,584
2,026
$40,610
64,605
4,219
$68,824
COGS
Direct Labor
Direct Materials
Total COGS
1,365
1,551
2,916
3,295
3,745
7,040
6,319
7,182
13,501
11,502
13,074
24,576
19,507
22,173
41,680
Gross Profit
1,911
4,610
8,826
16,034
27,144
Operating Expenses
Store Manager
In-Store Consultants
Rent Expense
Total Operating Expenses
244
398
150
792
576
961
350
1,887
1,081
1,843
650
3,574
1,926
3,355
1,150
6,431
3,202
5,690
1,900
10,792
Corporate Expenses
National Headquarter Rent
President
COO
VPs
Corporate Salespeople
Referrals & Other
National Marketing & Ads
Total Corporate Expenses
100
200
175
125
0
97
48
745
100
206
180
500
300
233
116
1,635
100
212
186
515
450
447
223
2,133
100
219
191
530
675
812
406
2,933
100
225
197
546
900
1,376
688
4,032
EBITDA
374
1,088
3,119
6,670
12,320
Depreciation
Amortization
67
141
165
329
320
611
582
1,081
988
1,786
EBIT
166
594
2,188
5,007
9,546
150
(210)
300
(74)
150
(85)
700
(171)
150
178
1,000
860
150
654
1,600
2,603
150
1,397
2,500
5,499
HPV Management Fee

Interest Expense
Owner's Consulting Contract
Taxable Income
Taxes
(29)
(69)
344
1,041
2,199
Net Income
(44)
(104)
516
1,562
3,299

A Brick House is Made of Bricks and The Bricks are Made from
Grains of Sand

Phase 1b: Screening - Analog Selection
Template
Case:
Staples (A)
Analogs
Cases:
Just Grapes
Vision Enterprises
Wind O&M
FCF
Criteria
Unit Model
Rollup
Theoretical Valuations
Assumptions
Unit Level FCF, IRR, CoC
Normalized SG&A
Investment
Assumptions
# Units per year, etc.
APV, NPV
Cases:
SLAB
Sporting Goods Store
Sunrise
HealthConnect
FCF and Real SG&A

Reference Analogs
Reference Analogs
Modified Roll-up
Total Build-up with
Effects of any JV
Case: All
Prose on decision
Cases:
AYS
Pay-Ease
Marketing Effects
Monitor
Investments
KPI
Case: All
Joint
Ventures
Cash Usage with

Lag
Case:
Life Sciences
IRR/CoC Table of
Returns - Common
Equity
Monthly Contribution
18 Month and 10 Year
Gantt Chart
Cases:
SenreQ
Marcia Radosevich
Life Sciences Comp.
Cases:
Vision Enterprises
Sunrise
HealthConnect
Editing
Marketing Options
Cases:
AYS
Life Sciences
Example: Direct
Brokered
Comparables
Negotiated Deal
Marketing
Research
Verification
Table of Capitalization
Research Issues
Cases:
Sporting Goods
Pay-Ease
Plan
Case:
SenreQ
Marcia Radosevich
Life Sciences Comp.
Term Sheet
Budget
Table of Returns Structured Deal

What is an Analog (Our Grains of Sand)?

An analog is a company or group of companies derived from secondary
market research, confirmed by personal interviews that mirror the
economics, operating characteristics, investment requirements and
customer profile of our new project. Among other things, analogs allow us to:
Model a cost structure for our concept or target company at the level of individual
cost components that reflects the economics of similar businesses
Forecast the likely sales cycle of our customer
Hypothesize about the investment requirements we can anticipate

Step 1: Selecting Analogs

Look at companies:
In the same line of business or industry
With similar cost structures
That pursue the same customers
Have comparable payment terms
Follow the same business and economic cycles
Require the same level of initial investment
Have grown or are projected to grow at the same rate

Some Key Resources

Some Key Resources :Secondary, Primary and Personal

Research
10

Qualitative Analog Matrix for a Vertical Search Engine Venture
11

Quantitative Analog Matrix for a Vertical Search Engine Venture
12

Our House is Made of Individual Bricks
13

Phase 1c: Screening Development of Unit Model :We are not

Valuing but Evaluating the Profit Formula and determining the
Peak Cash
Template
Case:
Staples (A)
Analogs
Cases:
Just Grapes
Vision Enterprises
Wind O&M
FCF
Criteria
Unit Model
Rollup
Assumptions
Normalized SG&A
Investment
Assumptions
APV, NPV
Cases:
SLAB
Sunrise
HealthConnect
FCF and Real SG&A

Reference Analogs
Reference Analogs
Modified Roll-up
Total Build-up with
Effects of any JV
Case: All
Prose on decision
Cases:
AYS
Pay-Ease
Marketing Effects
Monitor
Investments
KPI
Case: All
14
Joint
Ventures
Cash Usage with

Lag
Case:
Life Sciences
IRR/CoC Table of
Returns - Common
Equity
Gantt Chart
Cases:
SenreQ
Marcia Radosevich
Life Sciences Comp.
Cases:
Vision Enterprises
Sunrise
HealthConnect
Editing
Marketing Options
Cases:
AYS
Life Sciences
Example: Direct
Brokered
Comparables
Negotiated Deal
Marketing
Research
Verification
Research Issues
Cases:
Sporting Goods
Pay-Ease
Plan
Case:
SenreQ
Marcia Radosevich
Life Sciences Comp.
Term Sheet
Budget

Overview of Unit Model (A Single Brick)

A unit model reflects operations of a single location/account
Does not include system-wide advertising, marketing or other SG&A
Analogs provide information on individual store (i.e. unit) operating

economics
i.e. Margins and number of people employed
Typically analogs are more established companies (and larger than the
company in the case) as smaller companies are not generally public
Consequently they are especially good guides for expenses in years 6-10
To get the expense level in the early years, use older financial statements
S-1 (filed at IPO) is typically the earliest source of public financials
Construct a Unit Model to Evaluate the Profit Formula of the

Business in Microcosm
15

Step 2: Construct a Unit Model

Use analogs for direct costs, normalized SG&A and CAPEX
Revenues (-) COGS (-) Operating Expenses (=) Unit Level Profit Contribution
Unit Level Profit Contribution (-) Normalized SG&A (=) EBITDA
EBITDA (-) Depreciation & Amortization (-) Taxes (=) Net Income
Net Income (+) Depreciation (-) Capital Expenditures (-/+) Working Capital (=)
Unit Level Cash Flow
Rely on personal experience and anecdotal evidence
Ask yourself how much youd be willing to do the job for as a starting point for
salary
Evaluating the Unit Model
Calculate 5 and 10-year IRR and Cash-on-Cash returns
No terminal value
Negative sign initially due to investment
Do a sanity check do the numbers make sense?
Calculate 24 monthly columns for monitoring and editing purposes
16

Unit Model Summary (Primary Business Model for Wind Farm O

and M Business)
Dollars in Thousands
Year 1
Year 2
Year 3
Year 4
Projected
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
CAGR
$1,200
0
$1,200
$4,944
138
$5,082
$5,092
276
$5,368
$5,245
414
$5,659
$5,402
552
$5,954
$5,565
552
$6,116
$5,731
552
$6,283
$5,903
552
$6,455
$6,080
552
$6,632
$6,263
552
$6,815
18%
17%
19%
$20
228
8
83
378
78
$794
$82
937
31
343
1,556
322
$3,272
$85
743
32
354
1,602
326
$3,141
$87
765
33
364
1,650
300
$3,200
$90
788
34
375
1,700
309
$3,296
$93
811
35
386
1,751
318
$3,394
$96
836
36
398
1,803
328
$3,496
$98
861
37
410
1,858
337
$3,601
$101
887
38
422
1,913
347
$3,709
$104
913
39
435
1,971
358
$3,820
120
$914
494
$3,766
509
$3,651
525
$3,724
540
$3,836
556
$3,951
573
$4,069
590
$4,191
608
$4,317
626
$4,447
EBITDA
Margin (% of Revenue)
$286
24%
$1,316
27%
$1,718
34%
$1,935
37%
$2,119
39%
$2,166
39%
$2,214
39%
$2,264
38%
$2,315
38%
$2,368
38%
Depreciation & Amortization

EBIT
$118
$168
14%
$120
$1,196
24%
$122
$1,595
31%
$125
$1,810
35%
$128
$1,991
37%
$131
$2,035
37%
$133
$2,081
36%
$136
$2,128
36%
$139
$2,176
36%
$143
$2,226
36%
$59
$109
$419
$777
$558
$1,037
$633
$1,176
$697
$1,294
$712
$1,323
$728
$1,352
$745
$1,383
$762
$1,414
$779
$1,447
Adjustments to Net Income for Unit Level Cash Flow:

Deduct:
Initial Investment
($2,680)
Add Back: Depreciation
Deduct:
Capital expenditures
Deduct:
Incr. in Working Capital
($2,680)
$0
118
(12)
(99)
$116
10%
$0
120
(49)
(308)
$540
11%
$0
122
(51)
(12)
$1,096
22%
$0
125
(52)
(13)
$1,236
24%
$0
128
(54)
(13)
$1,355
25%
$0
131
(56)
(13)
$1,384
25%
$0
133
(57)
(14)
$1,415
25%
$0
136
(59)
(14)
$1,446
24%
$0
139
(61)
(15)
$1,478
24%
$0
143
(63)
(15)
$1,512
24%
Memo:
Unit Profit Contribution
$406
34%
$1,810
37%
$2,227
44%
$2,459
47%
$2,659
49%
$2,722
49%
$2,787
49%
$2,854
48%
$2,923
48%
$2,994
48%
Year 0
Revenue Mix
Contract Revenue
Revenue Share from Performance Enhancement
Total Revenue
[A]
Operating Expenses
Site Manager / Supervisor
Technicians
Admin Staff
Specialist (Repairs and Overhauls)
Equipment / Other Direct Expenses
Non-Direct Expenses
Normalized SG&A
Total SG&A
Cash Taxes
Net Income
IRR
Cash-on-cash
17
[B]
10.0%
35.0%
[C]=[A]-[B]
5-year
14.2%
1.8x
10-year
29.6%
5.4x

Unit Model Summary (Primary Business Model)

Dollars in Thousands
Year 1
Year 2
Year 3
Year 4
Projected
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
CAGR
$1,200
0
$1,200
$4,944
138
$5,082
$5,092
276
$5,368
$5,245
414
$5,659
$5,402
552
$5,954
$5,565
552
$6,116
$5,731
552
$6,283
$5,903
552
$6,455
$6,080
552
$6,632
$6,263
552
$6,815
18%
17%
19%
$20
228
8
83
378
78
$794
$82
937
31
343
1,556
322
$3,272
$85
743
32
354
1,602
326
$3,141
$87
765
33
364
1,650
300
$3,200
$90
788
34
375
1,700
309
$3,296
$93
811
35
386
1,751
318
$3,394
$96
836
36
398
1,803
328
$3,496
$98
861
37
410
1,858
337
$3,601
$101
887
38
422
1,913
347
$3,709
$104
913
39
435
1,971
358
$3,820
120
$914
494
$3,766
509
$3,651
525
$3,724
540
$3,836
556
$3,951
573
$4,069
590
$4,191
608
$4,317
626
$4,447
EBITDA
$286
24%
$1,316
27%
$1,718
34%
$1,935
37%
$2,119
39%
$2,166
39%
$2,214
39%
$2,264
38%
$2,315
38%
$2,368
38%
Depreciation & Amortization

EBIT
$118
$168
14%
$120
$1,196
24%
$122
$1,595
31%
$125
$1,810
35%
$128
$1,991
37%
$131
$2,035
37%
$133
$2,081
36%
$136
$2,128
36%
$139
$2,176
36%
$143
$2,226
36%
$59
$109
$419
$777
$558
$1,037
$633
$1,176
$697
$1,294
$712
$1,323
$728
$1,352
$745
$1,383
$762
$1,414
$779
$1,447
$0
118
(12)
(99)
$116
10%
$0
120
(49)
(308)
$540
11%
$0
122
(51)
(12)
$1,096
22%
$0
125
(52)
(13)
$1,236
24%
$0
128
(54)
(13)
$1,355
25%
$0
131
(56)
(13)
$1,384
25%
$0
133
(57)
(14)
$1,415
25%
$0
136
(59)
(14)
$1,446
24%
$0
139
(61)
(15)
$1,478
24%
$0
143
(63)
(15)
$1,512
24%
Year 0
Revenue Mix
Contract Revenue
Revenue Share from Performance Enhancement
Total Revenue
[A]
Operating Expenses
Site Manager / Supervisor
Technicians
Admin Staff
Specialist (Repairs and Overhauls)
Equipment / Other Direct Expenses
Non-Direct Expenses
Normalized SG&A
Total SG&A
Cash Taxes
Net Income
[B]
10.0%
35.0%
Adjustments to Net Income for Unit Level Cash Flow:

Deduct:
Initial Investment
($2,680)
Add Back: Depreciation
Deduct:
Deduct:
Incr. in Working Capital
($2,680)
Memo:
IRR
Cash-on-cash
18
[C]=[A]-[B]
5-year
14.2%
1.8x
$406
34%
$1,810
37%
$2,227
44%
$2,459
47%
$2,659
49%
$2,722
49%
$2,787
49%
$2,854
48%
$2,923
48%
$2,994
48%
10-year
29.6%
5.4x

Revenue
Formula
Cost
Structure
Initial
Investment
Working
Capital &
Maint.
Capex
Unit Model Initial Investment Breakdown

Initial Investment ($ in 000s)
[1]
[2]
[3]
[4]
[5]
[6]
[7]
[8]
[9]
Initial Fixed Assets per Unit

Cost per service truck
Number of trucks needed
Total Cost for Service Trucks
Maintenance capex as % of sales
Remote Monitoring Equipment
Monitoring equipment initial cost ($000s)
Product and services covered
Hardware, Installation, Training
Wind turbines
Total Estimated Remote Monitoring Costs
Computing Equipment
Laptops
Multifunction Printer
Server
Total Computing Equipment Costs
Initial Inventory
Inventory as % of initial investment
$120
$20
100
$2,000
75%
$34
1%
$0
0%
$0
0%
$205
8%
$322
12%
$2,680
100%
$32
$1
$1
0%
[11] O&M On Site Office Building

Depreciation life (years)
20
Total Initial Investment per Unit ($000s)
4%
Key Insights:
Remote Monitoring Equipment:
Reflects a major portion of the initial
investment (i.e. 75%)
1%
0%
Pre-Opening Expenses
Initial Sales and Marketing
Allocation of CEOs time for initial sale
Total Pre-Opening Expenses
% of
Total
$30
4
[10] Initial Accounts Payable

Initial accounts payable as % of inventory
[12]
[13]
19
Input
$222
50% $100
Alternatively, the O&M business

model could contemplate additional
manpower on call 24/7 & making
regularly scheduled visits
Tradeoff: recruiting and ongoing
personnel costs v. one-time capital
expenditure (refer to alternative Unit
Model)
Inventory: Replacement parts are

held by wind farm operators. If the
O&M business was required to hold
inventory, initial investment costs
and complexity of the business
would increase significantly
Initial Marketing: Invest heavily to
secure initial reference customers
through marketing activities and
CEOs personal attention
Types of Unit Models

There are generally four types of unit models:
1.
Physical Location or Store
2.
Geographic Region appropriate for specialty consumer products or services
3.
Example: a new product launched in a target SMSA*/city
Allocated Development Costs/Initial Reference Accounts appropriate for

products or services with an individual, multi-year customer account, recurring
revenue.
4.
Examples: Facility-based businesses: retail stores, lab facilities, production plants,

retirement communities, hospitals, etc.
Examples: business software platforms and business outsourcing services
Specialized Asset predominantly used for biotech ventures
Tracks annual cash injections that result in a liquidity option at the time of a new stage of
funding/development
One of only two unit models incorporating a terminal value (the other is real estate)
Terminal value can be used as proxy for liquidity value at end of project
*SMSA - Standard Metropolitan Statistical Area
20

Unit Model Initial Investment Assumptions from Analogs
Initial Fixed Assets 400k
Initial Inventory 2.3M
Standard used in analogs.
Maintenance CapEx (as % of sales)
21
Mean of analogs.
Depreciable Life 10 years
Most analogs show initial AP is half initial

inventory.
Pre-Opening Costs 88.5k
Represents mean of initial inventory per

square foot multiplied by 40,000 square
feet. Analogs used are Best Buy,
Oshmans, Staples, & Bizmart.
Initial A / P 1.15M
Represents median of Best Buy, Oshmans,

Staples, & BizMart initial fixed investment
in leasehold improvements and FFE.
0.5%, assumed from analogs.

Unit Model Revenue and Cost Assumptions from Analogs
Revenue Assumptions:
Square footage per store
We forecast 20% growth in first year, 15% in the second year, 7% the third, and 2% thereafter
(the rate of inflation and industry expansion). First-year numbers based off of Sports and
Recreation Inc. which experienced 10-20% annual growth during ramp up in years 1-3.
Mature same store sales growth
22
$225/sqft, slightly higher than Sportmart ($220/sq ft) and lower than Sports Chalet ($232/sq ft).
One would expect lower number for the increased store size, but believe the big box concept
will offset this fall in sales.
Sales growth rate
40,000 (of selling space) compares to existing competitors like Academys 30k sqft stores and
Modells of 15k sqft stores.
Average Sales/sqft
$9 million total; the industry average is $8 million in sales per store. However, their stores will
be larger than industry average. 40k sqft vs. 30k sq ft.
We modeled 2% growth in same stores as a reflection of industry expectations of future

growth in the industry. (Baird Industry Report)

Unit Model Revenue and Cost Assumptions from Analogs (contd)
Gross margin of 25%
In-store expenses - $19/sq ft
Breaking this down rent will be $11/sqft given price of other leasing destination stores in 1988,
such as Staples, and utilities will be $8/sqft in power strips vs. their in mall competitors which
could face up to much steeper costs per square foot.
Normalized SG&A - 11% of revenue
23
Near analogs Best Buy (25.1%) and Staples (24.5%). Analogs include rent, unit model
estimate of absolute COGS factors this in.
Given SG&A of BBY (18.8%), SPLS (21.0%) & TOY (18.8%), SGCS will have a SG&A of
about 19%. These analogs include store operating expenses such as rent, utilities, & store
labor. Our estimates of these items average 8%, so we use 11% for normalized SG&A.

Unit Model Revenue and Cost Assumptions from Analogs (contd)
Salary for management and sales associates in Fort Lauderdale were calculated
using salary.com and brought back 18 years using the US governments Employment
Cost Index (ECI).
Managers Salary in 1987 was $22,000
Sales Associates salary in 1987 was $12,400
Operating times 9am - 9pm Mon-Sat, 10am 6pm Sunday; 80 hours/week, times 52 weeks equals 4160
hours/year
During each hour eight employees will be on staff; based on Sports Authoritys store model
Estimating benefits atop salary will be 25%.
24
Growth will be 3.8%; determined by the 18 year compounded annual growth rate (CAGR) of
salary.
Days receivable, inventory turnover and days payable are calculated based on the
median of the analogs.
4 managers; based on Sports Authoritys store model

Estimating benefits atop salary will be 36%
Days Receivable
Inventory Turnover
Days Payable
9.4 days
3.1x
51.3 days
Taxes in 1988 will be 36%; the federal statutory rate is 34% plus 2% for state tax
(Oshmans AR & Tax Policy Center)
Physical Location or Store-Based Unit Model Assumptions for

Income Statement
($ in 000s)
Revenue assumptions
Selling Sq Footage (HPV & Mgmt Assumption)
Average Sales Per Square Foot
Growth Rate (HPV Assumption)
Mature Year Same Store Sales
Total Revenue
Direct expense assumptions
COGS as % of revenue (excl. depreciation)
(Source: Analogs A and B)
Total COGS
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
40,000
0.225
40,000
0.270
20.0%
40,000
0.311
15.0%
40,000
0.332
7.0%
40,000
0.339
40,000
0.346
40,000
0.353
40,000
0.360
40,000
0.367
40,000
0.374
9,000
10,800
12,420
13,289
2.0%
13,555
2.0%
13,826
2.0%
14,103
2.0%
14,385
2.0%
14,673
2.0%
14,966
66.6%
66.6%
66.6%
66.6%
66.6%
66.6%
66.6%
66.6%
66.6%
66.6%
5,990
7,188
8,266
8,845
9,022
9,202
9,386
9,574
9,765
9,961
30
31
32
34
35
36
38
39
40
42
4.0
120
4.0
125
4.0
129
4.0
134
4.0
139
4.0
145
4.0
150
4.0
156
4.0
162
4.0
168
30
31
32
33
34
35
36
37
38
39
8.0
240
8.0
247
8.0
255
8.0
262
8.0
270
8.0
278
8.0
287
8.0
295
8.0
304
8.0
313
0.019
760
0.019
760
0.019
760
0.019
760
0.019
760
0.019
760
0.019
760
0.019
760
0.019
760
0.019
760
0.019
11.0%
990
1,188
1,366
1,462
1,491
1,521
1,551
1,582
1,614
1,646
40,000
0.225
66.6%
In store manager
Salary (Source: HPV assumption)
Percent annual raise
FTEs
Total Manager Expense
30
3.8%
4.0
Sales Associates
Salary (Source: HPV assumption)
FTEs
Total Salespeople Expense
30
3.0%
8.0
In-store expenses (Rent and utilities)

Expenses per Sqr Foot (Source: HPV Assumption)
Normalized SG&A
25
Assumption

Physical Location or Store-Based Unit Model Assumptions for

Cash Flow Analysis
($ in 000s)
Cash flow assumptions
Assumption
Total Revenue
Accounts receivable
Collection days (Source: Analog A & B)
% of revenue
Unit COGS
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
9,000
10,800
12,420
13,289
13,555
13,826
14,103
14,385
14,673
14,966
232
9.4
2.6%
278
9.4
2.6%
320
9.4
2.6%
342
9.4
2.6%
349
9.4
2.6%
356
9.4
2.6%
363
9.4
2.6%
370
9.4
2.6%
378
9.4
2.6%
385
9.4
2.6%
5,990
7,188
8,266
8,845
9,022
9,202
9,386
9,574
9,765
9,961
Inventory
Inventory turnover (Source: Analog A & B)
% of revenue
2,300
1,932
3.1
21.5%
2,319
3.1
21.5%
2,667
3.1
21.5%
2,853
3.1
21.5%
2,910
3.1
21.5%
2,968
3.1
21.5%
3,028
3.1
21.5%
3,088
3.1
21.5%
3,150
3.1
21.5%
3,213
3.1
21.5%
Accounts payable
Days payable (Source: Analog A & B)
% of revenue
1,150
842
51.3
9.4%
1,010
51.3
9.4%
1,162
51.3
9.4%
1,243
51.3
9.4%
1,268
51.3
9.4%
1,293
51.3
9.4%
1,319
51.3
9.4%
1,346
51.3
9.4%
1,373
51.3
9.4%
1,400
51.3
9.4%
Net working capital

change in NWC
1,150
1,322
(172.2)
1,587
(264.4)
1,825
(238.0)
1,952
(127.7)
1,991
(39.0)
2,031
(39.8)
2,072
(40.6)
2,113
(41.4)
2,155
(42.3)
2,199
(43.1)
400
45
45
401
401
54
50
405
405
62
56
411
411
66
63
414
414
68
70
413
413
69
76
405
405
71
83
392
392
72
91
373
373
73
98
349
349
75
106
318
10.0
10.0
10.0
10.0
10.0
10.0
10.0
10.0
10.0
10.0
Fixed assets
Beginning balance
Additions: Maintenance capital expenditures
Subtractions: Depreciation
Ending balance
Depreciation life
26
400

Physical Location or Store-Based Unit Model Income Statement
($ in 000s)
Operational
Total Revenue
COGS
Gross profit
9,000
5,990
3,010
10,800
7,188
3,612
12,420
8,266
4,154
13,289
8,845
4,445
13,555
9,022
4,533
13,826
9,202
4,624
14,103
9,386
4,717
14,385
9,574
4,811
Operating expenses
In store manager
Sales associates
In-store expense (rent and utilities)
120
240
760
1,120
125
247
760
1,132
129
255
760
1,144
134
262
760
1,156
139
270
760
1,169
145
278
760
1,183
150
287
760
1,197
156
295
760
1,211
990
1,188
1,366
1,462
1,491
1,521
1,551
1,582
Total SG&A
2,110
2,320
2,510
2,618
2,660
2,704
2,748
2,793
EBITDA
% margin
900
10.0%
1,292
12.0%
1,644
13.2%
1,826
13.7%
1,873
13.8%
1,920
13.9%
1,969
14.0%
2,018
14.0%
45
856
9.5%
50
1,242
11.5%
56
1,588
12.8%
63
1,764
13.3%
70
1,803
13.3%
76
1,844
13.3%
83
1,885
13.4%
91
1,927
13.4%
308
548
447
795
572
1,016
635
1,129
649
1,154
664
1,180
679
1,206
694
1,233
1,890
21.0%
2,480
23.0%
3,010
24.2%
3,288
24.7%
3,364
24.8%
3,441
24.9%
3,520
25.0%
3,600
25.0%
Normalized SG&A
11.0%
Depreciation
EBIT
% margin
Taxes
Net income
Memo:
Unit profit contribution
% margin
27
36.0%

Physical Location or Store-Based Unit Model Cash Flow

Analysis
($ in 000s)
Year 0
Net income
Depreciation
Working capital
Financing & IRR
Initial fixed assets per unit
Initial inventory
Initial accounts payable
Pre-opening expenses
Unit Level Cash Flow (incl. investment)
IRR
Cash-on-cash
28
(400)
(2,300)
1,150
(89)
(1,639)
Year 1
Year 2
Year 3
Year 4
Projected
Year 5 Year 6
Year 7
Year 8
Year 9
Year 10
548
45
(45)
(172)
375
795
50
(54)
(264)
527
1,016
56
(62)
(238)
772
1,129
63
(66)
(128)
997
1,154
70
(68)
(39)
1,117
1,180
76
(69)
(40)
1,148
1,206
83
(71)
(41)
1,179
1,233
91
(72)
(41)
1,211
1,260
98
(73)
(42)
1,243
1,288
106
(75)
(43)
1,276
375
527
772
997
1,117
1,148
1,179
1,211
1,243
1,276
5-year 10-year
29.0%
42.0%
2.3x
6.0x


1.
2.
3.

revenue.
4.

funding/development
29

MMMM
Grade
Market
Current
Considerations
First market will be Columbus, OH.
Model
Management
Money
B-
Geographic Model based on saturating a given

metropolitan area before expanding into new areas;
limiting geographic roll-out to decrease inventory and
distribution uncertainties.
Outsourced manufacturing
Utilization of brokers to gain entry into drug, grocery,
and mass merchandise chains.
Founder Carmen Sandiego, Phd

Senior Research Scientist at Battelle Research
Institute (Columbus, Ohio)
Experienced researcher in Battelles Healthcare
Products Group; focusing on drug delivery and
product development services to the medical,
life sciences and biotechnology industries
Education: Master of Science and Doctorate
from the Ohio State University.
Modest development costs to bring product to market

Cost to enter initial market: ~$900,000
Favorable demographics1
High median household income
High retail sales per capita
Disproportionately young population (penetration of
competing products strongest among younger
customers)
Seasonal patterns consistent with strong product demand
Manufacturing could be brought in house once a critical
sales volume has been achieved.
Competition will be intense. Added investment in R&D
(line extensions), Patent Rights, and Advertising may be
necessary to both attain and defend market share.
Utilization of brokers is risky. Success in using brokers
is unknown, and current relationships with brokers do not
exist.
Product Development & Research will be headed by
Carmen Sandiego. Carmens core expertise is in research,
and there is still considerable pre-launch work to be done in
the areas of packaging and product design.
Hire new President with CPG marketing and operations
experience. The presidents immediate concern is go-tomarket strategy and establishing business processes.
Later hires would include a CMO and a COO as the
company pursues national expansion.
Development cost subject to R&D-related uncertainties.

Cost to enter new markets low because of outsourced
manufacturing and distribution through brokers.
Competitive product space may require large initial
promotion and advertising spend.
1. US Census Data
30

Geography-Based Unit Model: Initial Investment from Analogs

Initial Investment
Fixed Asset Assumptions
Square Footage
Buildout Cost/ Sq.Ft.
Annual Rent/Sq. Ft.
6,000
$50
25
$450,000
R&D Cost
$400,000
Depreciation life
Fixed assets as % of initial investment
Slotting Fee Per Store
Kroger Grocery Stores
Other Grocery Stores
Drug Stores
Total Grocery Stores
Slotting Fee
Slotting Fee as % of Initial Investment
1
2
3
22
49.6%
0.5%
$50
128
31
77
236
7
8
9
10
$11,800
1.3%
Broker Fee (Initial)

Distributor Fee as % of Initial Investment
$4,000
0.4%
Initial inventory
Initial Inventory Days
$7,536
44
0.8%
12

Initial accounts payable as % of initial investment
$3,819
50.7%
0.4%
13
Pre-opening expenses as % of initial investment
Total initial investment per unit
31
Source
$30,000
3.3%
$907,156
11
14

Geography-Based Unit Model: Initial Investment Assumptions

Initial Investment Assumptions
(Dollars in Thousands)
Initial Investment
Depreciation life
Fixed assets as % of initial investment
Initial inventory
150.0
10.0
15.9%
2.0%
25.0
2.6%
Analogs: BriteSmile and Metropolitan Health Networks

Initial Office Supplies for Medical Office Location
Minimal A/P - business model is 'private pay'

Initial accounts payable as % of initial investment
10.0
40.0%
1.1%
Legal fees, permits etc.
Advertising production expenses
Pre-opening expenses as % of initial investment
732.0
75.0
657.0
77.4%
Legal fees, permits per location, Source: Partner at Wildman & Harrold
Allocated Cost Per Unit for Media Costs, NBC 5 TV & Media Estimates
IT Investment
Computers and Software
Database and Records System (Infrastructure & IT Consulting)
IT Investment as % of initial investment
48.8
7.5
41.3
5.2%
Allocated Costs Per Unit, CNA IT Systems Engineer

Allocated Costs Per Unit, CNA IT Systems Engineer
945.8
Total Number of Units Per Region
Total initial investment per unit
$30,000
$165,000
$195,000
4.0
$48,750
CNA IT Systems Engineer

IT Investments
Computer and Software per Region
Database and Records System
Total Investment
# of Units per Region
Allocated Cost Per Unit
$1,200 - $3,000
$50 to $15,000
Total estimated startup cost per each

geographic region
32
Assumption
Initial setup costs for opening the consultancy office, Source: Pinnacle Care
HPV Assumption
3
7
50
$2,500
$3,000
$2,628,000
4.0
$657,000
4.0
NBC 5 TV & Media Estimates

(http://www.nbc5.com/advertise/1674311/detail.html)
Advertising Production Expenses
Creation
1 hour planning meeting
1 hour of copywriting time
2 hours of shooting time
1 hour of editing time
0.5 hours for graphics/art
Announcer Fee
30 Second Commercial
# of Commercials per day
# of Days Per Week
# of Weeks Commercial is Aired
30 Second Commercial (11AM Slot is $200)
Creation
Total
# of Units per Region
Allocated Cost Per Unit

Geography-Based Unit Model: Advertising Assumptions - Laser

Vision Analog
Advertising expenditure for one region
Medium
Local radio spot
Local TV spot
Local newspaper
Local magazine
Industry and special interest publications
Local Yellow Pages (online + print)
Web based advertising (Search engines,
Medical info sites)
Billboards around the metro area/ airport
Grand opening advertising expenses
Information seminars
Mail-in information
Marketing coordinator
Advertisement design - radio
Advertisement design - TV
Brochure design/ printing
Advertisement design - newspaper
Advertisement design - magazines
33
Spot Type Rate/ spot

30 sec
75
30 sec
500
Half page
1000
1 page
500
1 page
1000
1/2 page
1000
Banner ads
1000
Rate/ unit
15000
5000
5000
0.45
40000
5000
25000
7500
3000
5000
Year 0
Source
Internet
Internet
Star Tribune (Mpls/ St. Paul)
Internet
Internet
Qwest Dex
HPV Assumption
Year 2
# spots
2000
300
200
50
50
1
50
Year 3
# spots
3000
400
200
50
75
1
50
Year 4
# spots
2000
350
150
30
50
1
50
Year 5
# spots
2000
350
100
30
50
1
50
Year 6
# spots
2000
350
100
30
50
1
50
Year 7
# spots
2000
350
100
30
50
1
50
2
2
3
100000
4
2
2
100000
4
0
1
100000
2
0
1
100000
2
0
1
100000
2
0
100000
Internet
Analog- LCA Vision
Analog- LCA Vision
HPV Assumption
1
1
2
100000
Salary.com
Internet
Internet
HPV Assumption
HPV Assumption
HPV Assumption
1
1
1
1
1
1
1
0.5
0.5
0.25
0.5
0.5
1
0.5
0.5
0.25
0.5
0.5
1
0.5
0.5
0.25
0.5
0.5
1
0.5
0.5
0.25
0.5
0.5
1
0.5
0.5
0.25
0.5
0.5
1
0.5
0.5
0.25
0.25
0.25
1
0.5
0.5
0.25
0.25
0.25
$77,250
$103,000
$103,000
$15,450
$25,750
$1,030
$30,900
$159,135
$159,135
$212,180
$26,523
$53,045
$1,061
$53,045
$245,864
$218,545
$218,545
$27,318
$81,955
$1,093
$54,636
$168,826
$196,964
$168,826
$16,883
$56,275
$1,126
$56,275
$173,891
$202,873
$115,927
$17,389
$57,964
$1,159
$57,964
$179,108
$208,959
$119,405
$17,911
$59,703
$1,194
$59,703
$184,481
$215,228
$122,987
$18,448
$61,494
$1,230
$61,494
$0
$15,450
$5,150
$10,300
$46,350
$31,827
$10,609
$15,914
$47,741
$65,564
$10,927
$10,927
$49,173
$67,531
$0
$5,628
$50,648
$34,778
$0
$5,796
$52,167
$35,822
$0
$5,970
$53,732
$36,896
$0
$0
$55,344
$40,000
$5,000
$25,000
$7,500
$3,000
$5,000
$85,500
$41,200
$2,575
$12,875
$1,931
$1,545
$2,575
$496,331
$42,436
$2,652
$13,261
$1,989
$1,591
$2,652
$834,796
$43,709
$2,732
$13,659
$2,049
$1,639
$2,732
$1,051,067
$45,020
$2,814
$14,069
$2,110
$1,688
$2,814
$857,497
$46,371
$2,898
$14,491
$2,174
$1,739
$2,898
$790,480
$47,762
$2,985
$14,926
$2,239
$896
$1,493
$811,806
$49,195
$3,075
$15,373
$2,306
$922
$1,537
$830,011
Medium
Spot Type Rate/ spot
Local radio spot
30 sec
75
Local TV spot
30 sec
500
Local newspaper
Half page
1000
Local magazine
1 page
500
Industry and special interest publications 1 page
1000
Local Yellow Pages (online + print)
1/2 page
1000
Web based advertising (Search engines, Medical
Bannerinformation
ads
sites)
1000
Rate/ unit
Billboards around the metro area/ airport
15000
Grand opening advertising expenses
5000
Information seminars
5000
Mail-in information
0.45
Source
Internet
Internet
Star Tribune (Mpls/ St. Paul)
Internet
Internet
Qwest Dex
HPV Assumption
Marketing coordinator
Advertisement design - radio
Advertisement design - TV
Brochure design/ printing
Advertisement design - newspaper
Advertisement design - magazines
Total advertising expenditure
Salary.com
Internet
Internet
HPV Assumption
HPV Assumption
HPV Assumption
40000
5000
25000
7500
3000
5000
Year 1
# spots
1000
200
100
30
25
1
30
Internet
Analog- LCA Vision
Analog- LCA Vision
HPV Assumption

Geography-Based Unit Model: Income Statement and Cash Flow

Assumptions
Income Statement Assumptions
Revenue assumptions
Total Revenue
Source
Initial
Assumption
See Presentation Pgs. 8-9
Total direct expense assumptions

Total COGS
15
Operating expenses
Brokerage Expense (% of Annual Revenue)
Selling and Advertising (% of Annual Revenue)
Total SG&A
16
17
Administrative Assistant Salary

FTEs
Total Non-Executive Labor Expense
18
19
20
Normalized G&A
SG&A
21
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
$133
$186
$219
$254
$264
$275
$286
$298
$309
$322
$63
$87
$103
$120
$125
$129
$135
$140
$146
$151
$2
17
$19
$3
23
$26
$3
28
$31
$4
32
$36
$4
33
$37
$4
35
$39
$4
36
$40
$4
37
$42
$5
39
$44
$5
41
$45
$31
3.0%
1.0
$31
$32
3.0%
1.0
$32
$33
3.0%
1.0
$33
$34
3.0%
1.0
$34
$35
3.0%
1.0
$35
$36
3.0%
1.0
$36
$37
3.0%
1.0
$37
$38
3.0%
1.0
$38
$39
3.0%
1.0
$39
$40
3.0%
1.0
$40
$11
$15
$18
$20
$21
$22
$23
$24
$25
$26
47.1%
1.5%
12.6%
$30
3.0%
1.0
8.0%
Cash Flow Assumptions

Initial
Assumption
Cash flow assumptions

Total Revenue
Accounts receivable
Collection days
% of revenue
22
Unit COGS
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
$133
$186
$219
$254
$264
$275
$286
$298
$309
$322
$16
44
$23
44
$27
44
$31
44
$32
44
$33
44
$35
44
$36
44
$38
44
$39
44
$63
$87
$103
$120
$125
$129
$135
$140
$146
$151
Inventory
Inventory days
% of revenue
23
$12
73
9.4%
$17
73
9.4%
$21
73
9.4%
$24
73
9.4%
$25
73
9.4%
$26
73
9.4%
$27
73
9.4%
$28
73
9.4%
$29
73
9.4%
$30
73
9.4%
Accounts payable
Days payable
% of revenue
24
$10
58
7.5%
$14
58
7.5%
$16
58
7.5%
$19
58
7.5%
$20
58
7.5%
$21
58
7.5%
$21
58
7.5%
$22
58
7.5%
$23
58
7.5%
$24
58
7.5%
19
$19
26
$7
31
$5
36
$5
37
$1
39
$1
40
$2
42
$2
44
$2
45
$2
Net working capital

Change in NWC
Fixed assets
Beginning balance
Additions: Maintenance capital expenditures
Subtractions: Depreciation
Ending balance
Depreciation life
34
Year 1
$450
$450
1
(21)
$430
$430
1
(20)
$411
$411
1
(19)
$393
$393
1
(18)
$376
$376
1
(18)
$359
$359
1
(17)
$344
$344
1
(16)
$329
$329
1
(15)
$315
$315
2
(15)
$302
$302
2
(14)
$290
22

Geography-Based Unit Model: Income Statement & Cash Flow

Analysis
(in $000s)
Unit Model: Income Statement
0
186
18.1%
87
99
220
16.0%
103
117
255
4.0%
120
135
265
4.0%
125
140
276
4.0%
129
147
287
4.0%
135
152
298
4.0%
140
158
310
4.0%
146
164
322
4.0%
151
171
Rent and Utilities

Labor
Operational Expenses
19
31
50
26
32
58
31
33
64
36
34
70
37
35
72
39
36
75
40
37
77
42
38
80
44
39
83
45
40
85
Normalized SG&A
11
15
18
20
21
22
23
24
25
26
Total SG&A
61
73
82
90
93
97
100
104
108
111
EBITDA
Depreciation
EBIT
Taxes
35%
Net Income
Memo:
Year
5
133
39.8%
63
70
Channel Revenue
% Growth
Total Direct Costs
Gross Profit
10
26
35
45
47
50
52
54
56
60
21
20
19
18
18
17
16
15
15
14
(12)
16
27
29
33
36
39
41
46
10
11
12
14
14
16
(12)
10
17
19
21
23
25
27
30
20
41
53
65
68
72
75
78
81
86
Unit Model: Cash Flow Statement

0
Net Income
Depreciation
Capital Expenditures
Working Capital
Initial Investment
Slotting Fee
Distributor Fee
Initial Inventory
Initial Accounts Payable
Pre-Opening Expenses
Total Initial Investment
(12)
(4)
(8)
(4)
(30)
(58)
Unit Level Cash Flow (Incl. Initial Inv.)
(58)
IRR
Cash on Cash
35
Year
5
10
(12)
21
(1)
(19)
(11)
4
20
(1)
(7)
16
10
19
(1)
(5)
23
17
18
(1)
(5)
29
19
18
(1)
(1)
35
21
17
(1)
(1)
36
23
16
(1)
(2)
36
25
15
(1)
(2)
37
27
15
(1)
(2)
39
30
14
(1)
(2)
41
(11)
16
23
29
35
36
36
37
39
41
5-Year
10-Year
11.9%
29.0%
1.5x
4.2x


1.
2.
3.

revenue.
4.

funding/development
36

Background
Description of Idea
SFMachine is extending the enterprises IT security perimeter to encompass every PDA and
smartphone used by its mobile workers.
The handheld device is becoming ubiquitous in business, with cumulative sales of smart
handheld devices forecast to hit 100 million units by 2007 according to IDC. As the devices
become more powerful, they are housing and transmitting more and more sensitive business
data. It is thus imperative for businesses to begin treating the mobile device like the small
laptop it has become, and secure it with the full range of available security applications,
including firewalls, authentication, intrusion-detection, encryption.
Stage/Opportunity
Business Description
37
Series B
Hurdle rate: 45%
SFMachine develops and markets software security applications for mobile devices. Its
products are sold to large enterprises exposed to the risks of data loss and/or theft and/or
compromise of network security (e.g. virus infection) through the use of PDAs and
Smartphones by its employees. SFMachines products are sold through a variety of channels
including direct, through Value-added Resellers (VARs) and in partnership with Original
Equipment Manufacturers (OEMs).
Account Based R&D Allocation Investment /initial accounts
Initial R&D Investment Assumptions

(in $000s)
Initial R&D Investment [1]
Assumptions
Mainframe Conversion Expense
No initial inventory, A/P, or pre-opening expenses
Programmer Assumptions:
Estimated Lines of Code
Lines of Code per Programmer Per Day [6]
Estimated Working Days Per Year
Lines of Code Per Programmer Per Year
Desired Timeline (Years)
Number of Programmers Needed
Staff
Programmers
Project Manager
Senior Developer - Mainframe (such as IBM DB2)
Senior Programmer / Analyst - CodeReview Product
Total Staff
Budgeted Hardware / Software Expenses
Database Hardware and Software Support
Total Initial R&D Investment
Incremental Investment per Unit
Total
70,000
50
200
10,000
1
7
Headcount
7
1
1
1
Source: Discussion with Steve Thomhill, VP Impressive Solutions / industry experts [3][4]
Cost [2] Total Cost

44.4
310.8
64.8
64.8
54.0
54.0
54.0
54.0
483.6
100.0
Stay
Stay
Stay
Stay
with company
with company
with company
with company
following conversion for support

(G&A)
(G&A)
(G&A)
(G&A)
100.0
Year 1 expense only [5]
583.6
Completed year 1, no sales until complete

Allocate to first 50 accounts for unit model purposes
0.0
No incremental initial expense for each new customer account
Notes:
[1] This is the sole investment required to support the new mainframe sales, it occurs in year 1 and is not recurring. Additional R&D and support costs included in forecasted expense line items
[2] Cost is estimated based on Thomhill's recollection of comparable salaries and benefits from the time of the case (1989) and includes 20% fringe
[3] Assumption predicated on the original PC product being built using Micro Focus COBOL, which was a mainframe-compatible language for PC
[4] To the extent that the original program coded was in BASIC, the estimates will be understated
[5] HPV estimate - intended to cover purchase of DB2 or similar mainframe database system and associated required hardware
[6] Represents "clean" code, fully debugged and tested
38

Account Based Unit Model

Account based, with allocation of initial R&D expenditures
Unit Model Assumptions
Driver
Input
Source
[1]
Average number of employees at large company
31,668
U.S. Census Bureau Company Summary, 1992. Large company defined as >10,000 employees
[2]
Employee growth rate
1.1%
U.S. Census Bureau Statistical Abstract of the U.S., 1989.

Rate based off the annual population growth rate in 1989.
[3]
Average number of dependents per employee
1.4
Congressional Budget Office Staff Memorandum, Mar. 1992
[4]
Total available pool of insured persons
76,003
[1] * {[3] + 1}
[5]
Percentage of employees / dependents insured
92%
Monthly Labor Review, Jun. 1990
[6]
Total insured persons covered by licensing fee
69,923
[4] * [5]
[7]
License fee per insured person
$0.39
Proquest - "OS/2" System Keeps Tabs on Health Costs", Nov. 1990.
[8]
Annual increase in license fee
8%
Center for Studying Health System Change - "Tracking Healthcare Costs", Oct. 2006
[9]
COGS as a % of Revenue
19.1%
Based on Analogs - see Appendix
[10]
Mainframe Conversion Expense
$584
Source: Discussion with Steve Thornhill, VP of software company.
Range of $50k-100k for claims review for 194k people. Assumed midpt.
See Investment Tab for detail.
39
[11]
Ongoing R&D as a % of Revenue
10.2%
[12]
Selling and Marketing as a % of Revenue
11.6%
[13]
Normalized G&A as a % of Revenue
20.0%
[14]
Days Receivable
85.6
[15]
Days Payable
70.2
[16]
Days Accrued
53.9
[17]
Capex as % of Revenue
7.0%
[18]
Depreciation and Amortization as a % of Revenue
7.0%

Account Based Unit Model Assumptions
Income Statement Assumptions

Revenue assumptions
Average number of employees at large company
Employee growth rate
Average number of dependents per employee
Total available pool of insured persons
Percentage of employees / dependents insured
Total insured persons covered by licensing fee
License fee per insured person
Annual increase in license fee
Total Revenue
40
Initial
Assumption
31,668
1.1%
1.4
76,003
92.0%
69,923
0.39
8.0%
Direct expense assumptions

Total COGS
19.1%
Initial R&D - allocate to first 100 accounts
584
Normalized Ongoing R&D as a % of sales

Total Ongoing R&D Expense
10.2%
Normalized Ongoing Selling & Marketing as a % of sales

Total Selling & Marketing Expense
11.6%
Normalized Ongoing G&A as a % of sales

Total R&D Expense
20.0%
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Source
31,668
32,016
32,369
32,725
33,085
33,448
33,816
34,188
34,564
34,945
76,003
92.0%
69,923
0.39
76,839
92.0%
70,692
0.42
77,684
92.0%
71,470
0.45
78,539
92.0%
72,256
0.49
79,403
92.0%
73,051
0.53
80,276
92.0%
73,854
0.57
81,159
92.0%
74,667
0.61
82,052
92.0%
75,488
0.66
82,955
92.0%
76,318
0.72
83,867
92.0%
77,158
0.77
[1]
[2]
[3]
[4]
[5]
[6]
[7]
[8]
27.0
29.5
32.2
35.2
38.4
42.0
45.8
50.0
54.6
59.6
19.1%
5.2
19.1%
5.6
19.1%
6.2
19.1%
6.7
19.1%
7.3
19.1%
8.0
19.1%
8.8
19.1%
9.6
19.1%
10.4
19.1%
11.4
[9]
[10]
2.8
3.0
3.3
3.6
3.9
4.3
4.7
5.1
5.6
6.1
[11]
3.1
3.4
3.7
4.1
4.5
4.9
5.3
5.8
6.3
6.9
[12]
5.4
5.9
6.4
7.0
7.7
8.4
9.1
10.0
10.9
11.9
[13]

Account Based Unit Model

Year 0
Operational
Total Revenue
COGS
Gross profit
Operating
expenses:
SG&A
Initial R&D - allocate to first 50 accounts
Ongoing R&D (normalized)
Ongoing Selling & Marketing (normalized)
Ongoing G&A (normalized)
Total
Operating Expenses
Total SG&A
11.7
10.2%
11.6%
20.0%
11.7
EBITDA
% margin
(11.7)
Depreciation
EBIT
% margin
7.0%
Cash taxes
Net income
35.0%
(11.7)
(11.7)
Unit profit contribution (gross profit)

% margin
Year 1
Year 2
Year 3
Year 4
27.0
5.2
21.9
29.5
5.6
23.9
32.2
6.2
26.1
35.2
6.7
28.5
Projected
Year 5
Year 6
38.4
7.3
31.1
42.0
8.0
33.9
Year 7
Year 8
Year 9
45.8
8.8
37.0
50.0
9.6
40.4
54.6
10.4
44.2
Year 10
59.6
11.4
48.2
0.0
2.8
3.1
5.4
11.3
0.0
3.0
3.4
5.9
12.3
0.0
3.3
3.7
6.4
13.5
0.0
3.6
4.1
7.0
14.7
0.0
3.9
4.5
7.7
16.1
0.0
4.3
4.9
8.4
17.5
0.0
4.7
5.3
9.1
19.1
0.0
5.1
5.8
10.0
20.9
0.0
5.6
6.3
10.9
22.8
0.0
6.1
6.9
11.9
24.9
10.6
39.1%
11.5
39.1%
12.6
39.1%
13.7
39.1%
15.0
39.1%
16.4
39.1%
17.9
39.1%
19.5
39.1%
21.3
39.1%
23.3
39.1%
1.9
8.7
32.0%
2.1
9.5
32.0%
2.3
10.3
32.0%
2.5
11.3
32.0%
2.7
12.3
32.0%
2.9
13.4
32.0%
3.2
14.7
32.0%
3.5
16.0
32.0%
3.8
17.5
32.0%
4.2
19.1
32.0%
5.6
10.4
6.1
11.4
6.7
12.4
40.4
80.9%
44.2
80.9%
48.2
80.9%
3.0
5.6
21.9
80.9%
3.3
6.1
23.9
80.9%
3.6
6.7
26.1
80.9%
3.9
7.3
28.5
80.9%
4.3
8.0
31.1
80.9%
4.7
8.7
33.9
80.9%
5.1
9.5
37.0
80.9%
Unit Model: Cash Flow Analysis

Year 0
Free Level
cash flow
Unit
Free Cash Flow
Net income
Depreciation
Working capital
Free Level
cash flow
Unit
Free Cash Flow
IRR
Cash-on-cash
41
(11.7)
7.0%
(11.7)
5-year
32.3%
2.5x
Year 1
5.6
1.9
(1.9)
(3.7)
2.0
Year 2
6.1
2.1
(2.1)
(0.3)
5.8
Year 3
6.7
2.3
(2.3)
(0.4)
6.4
Year 4
7.3
2.5
(2.5)
(0.4)
6.9
Projected
Year 5
Year 6
8.0
2.7
(2.7)
(0.4)
7.6
8.7
2.9
(2.9)
(0.5)
8.3
Year 7
9.5
3.2
(3.2)
(0.5)
9.0
Year 8
10.4
3.5
(3.5)
(0.6)
9.9
Year 9
11.4
3.8
(3.8)
(0.6)
10.8
10-year
45.0%
6.7x

Year 10
12.4
4.2
(4.2)
(0.7)
11.7

1.
2.
3.

revenue.
4.

funding/development
42

43

Specialized Asset Unit Model: New Antibiotic Cethromycin; Financing

Sources are Crucial
Drug Development without Grants
Discovery
6 months
Infusion Schedule
Upfront payments
R&D payments
Milestone payments
Royalties
Cash infusions
$4,095
$33,238
$5,460
20%
Expenses
R&D
Cumulative R&D
958
958
Phase 1
Year 3
13,295
4,095
9,971
Phase 2
Year 5
Year 4
6,648
Year 6
Phase 3
Year 7
Year 8
3,324
2,730
2,730
13,295
14,066
6,648
2,730
3,324
2,730
958
1,916
2,711
4,627
15,200
19,827
11,750
31,577
11,750
43,327
36,392
79,719
29,113
108,832
20,795
129,627
G&A
% of R&D
EBIT
352
36.8%
(1,310)
352
36.8%
(1,310)
996
36.8%
9,588
5,586
36.8%
(6,720)
4,318
36.8%
(9,420)
4,318
36.8%
(13,338)
13,374
36.8%
(46,442)
10,699
36.8%
(39,812)
7,642
36.8%
(25,707)
D&A
EBITDA
86
(1,224)
91
(1,219)
107
9,695
219
(6,501)
381
(9,039)
504
(12,834)
783
(45,659)
1,152
(38,660)
1,378
(24,329)
0
0
(121)
131
(1,234)
(1,234)
0
0
0
131
(1,350)
(2,584)
3,393
(855)
(221)
371
(6,288)
(8,873)
0
0
(1,578)
2,079
(21,068)
(29,941)
0
0
436
1,607
(17,730)
(47,671)
0
0
0
1,607
(17,171)
(64,842)
0
0
(3,113)
4,978
(50,848)
(115,690)
0
0
919
3,982
(43,561)
(159,251)
0
0
1,051
2,845
(30,955)
(190,206)
Taxes
NOL
Change in Wkg Cap
CapEx
FCF
Cumulative FCF
35%
Exit Value
PV @ 60% hurdle rate
9,277
Exit Value
PV @ 60% hurdle rate
14,305
TV - Year 3
TV - Year 5
IRR
Cash-on-cash
44
Preclinical
6 months
Year 2
0
0
0
0
38,000
38,000
0
0
0
0
0
0
(1,234)
(1,234)
Year 3
62%
1.9x
Year 5
64%
2.8x
(1,350)
(1,350)
(2,584)
(6,288)
(6,288)
(6,288)
16,932
(21,068)
(21,068)
0
0
(17,730)
(17,730)
150,000
150,000
132,829
132,829

ADLS: Analog Precedent Transactions
Market
Phase 1 or 2
Pre Clinical
Phase III & NDA

Filed
X
X
Product Pipeline
Products per stage
Episodic
Chronic
Company
SGX Pharma
Solvay- US
Arrow Therapeutics
Arrow Therapeutics
Theravance Inc.
Hypnion
Antibiotic
Product type
1
X
X
X
X
2
2
1
1
1
1
Peninsula
Vicuron Pharma
ICOS
Basilea
1
X
Activity target
(drug or
company)
Company
Luvox
RSV 604
Company
Telavancin
Company,
HY10275
Company,
Doripenem
Company,
Dalbavancin &
Anidulafungin
Company
Cialis
Ceftobiprole
Acquirer
Eli Lilly
Licensee
Jazz Pharma
Novartis
Astra Zenca
Astellas
Eli Lilly
Date
Aug-08
Feb-07
Jun-05
Feb-07
Nov-05
Mar-07
Valuation
per Drug
($M)
140
227
221
291
J&J
Jun-05
245
Pfizer
Jun-05
1,900
Eli Lilly
Oct-06
2,100
2,100
Feb-05
311
311
J&J
Source: Company filings and press release, CapIQ, Thomson
45
Transaction
Value ($M)
64
140
227
150
221
291

245
950
Unit Model Assumptions: New Antibiotic Cethromycin

Global Assumption:
Unit model assumptions for pre-approval stages in 2006 - 2008 (Year 8 - Year 10) based on selected direct analogs
Unit model assumptions for post-apporval market stages in 2009 - 2013 (Year 11 - Year 15) based on big pharma comps
[1]
Assumption
Market Size for Cethromycin
Source
ICIS
[2]
Market Penetration Ramp
[3]
COGS
Business Insights: Global AntiInfectives market Outlook

Public Analog filings
[4]
R&D
Di Masi, Biomedical Industry

Advisory Group
~$55M in TOTAL phase III spending and $12M in

NDA application and approcal spend
Median R&D spend post approval ~15% of revenue Pre-approval assumptions based on direct analogs,
post approval based on big pharma analogs
[5]
SG&A
Median SG&A spend post approval ~25% of

revenue
[6]
Licensing Royalties
ALS 2005 Annual Report
[7]
Milestone Payments
[8]
[9]
[10]
[11]
Depreciation
Other Cash Infusions
Capital Expenditures
Working Capital

19.0% on first $100M, 18.0% on next $100M and

17.0% thereafter
$10M lumpsum payment on submission of NDA,
$30.0M payment on approval of drug
~2% of revenue
$32.0M raised in 2005 IPO, $33.6M in 2006 PP
~3% of revenue
Based on median days payable and receivable of 70
and 55
Precedent acquisitions of drug licenses and
pharmaceutical development companies
[12] Liquidity Event
46
CapIQ, Thomson, Company

Websites
Data
Pfizer Inc.'s Zithromax (azithromycin), the leading
macrolide antibiotic has annual global sales of $1.5
billion
Ketek achieved global sales of ~$550M in 4 years
Macrolides are the leading growth drivers in antibacterial sales, taking an ~30% market share
Median gross margin for drugs on the market is 73%
Explanation
Both Zithromax and Ketek are comparable drugs;
HPV estimate for cethromycin parallels Ketek
Conservative HPV estimates that cethromycin can
penetrate 9% of macrolide market by yr 5
This is a blend of both contract manufactured and inhouse products
$26M in Phase III spend post investment
Pre-approval assumptions based on direct analogs,

post approval based on big pharma analogs
Applied only after cethromycin hits market

Applied only after cethromycin hits market
Applied only after cethromycin hits market; minimal
WC prior to then
Based on prior acquisitions of drugs or companies
with drugs at similar stages development

Unit Model
Year 0
Discovery
[1]
[2]
[3]
[3]
[4]
[5]
[6]
[7]
Sales
CAP Market Penetration
COGS
Gross profit
Gross Margin
Operating expenses
R&D
SG&A
Licensing Royalties
Milestone Payments
Total
Depreciation
EBIT
% margin
2.0%
2004
Projected
Year 7
Year 8
Phase III
2005
2006
Year 9
Year 10
Post - Approval
2007
2008
225
496
180
320
121
0
0
na
0
0
na
0
225
100.0%
0
496
100.0%
0
180
100.0%
0
320
100.0%
0
121
100.0%
0
0
na
0
0
na
0
0
0
0
0
0
0
0
0
0
2,772
461
0
0
3,233
925
669
0
0
1,593
1,362
1,199
0
0
2,561
25,662
1,650
0
0
27,312
3,122
3,238
0
2,000
8,360
26,200
4,000
0
0
30,200
0
na
0
na
(3,007)
(1335.3%)
(1,097)
(221.1%)
(2,381)
(1319.4%)
(26,992)
(8440.8%)
(8,238)
(6783.1%)
0
0
na
0
0
na
0
(3,007)
(1335.3%)
0
(1,097)
(221.1%)
50
(2,430)
(1346.9%)
68
(27,060)
(8462.2%)
(3,007)
(4,105)
(6,535)
0
0
0
0
0
(3,007)
0
(1,097)
0
(2,430)
0
na
0
na
35.0%
Unit profit contribution

% margin
Year 6
NOLs
Cash taxes
Net income
Year 4
Year 5
Phase II
2002
2003
15.0%
25.0%
EBITDA
% margin
[8]
Year 1
Year 2
Year 3
Pre-Clinical
Phase I
1999
2000
2001
225
100.0%
496
100.0%
180
100.0%
Year 11
2009
Year 12
Year 13
Market Ready
2010
2011
Year 14
Year 15
2012
2013
0
0
na
51,250
2.5%
15,375
35,875
70.0%
102,500
5.0%
29,725
72,775
71.0%
153,750
7.5%
43,050
110,700
72.0%
174,250
8.5%
47,048
127,203
73.0%
184,500
9.0%
47,970
136,530
74.0%
6,000
4,500
0
10,000
20,500
6,000
5,000
0
30,000
41,000
7,688
12,813
9,738
0
30,238
15,375
25,625
18,938
0
59,938
23,063
38,438
26,600
2,500
90,600
26,138
43,563
29,623
0
99,323
27,675
46,125
31,365
5,000
110,165
(30,200)
na
(20,500)
na
(41,000)
na
5,638
11.0%
12,838
12.5%
20,100
13.1%
27,880
16.0%
26,365
14.3%
87
(8,325)
(6854.4%)
0
(30,200)
na
0
(20,500)
na
0
(41,000)
na
1,025
4,613
9.0%
2,050
10,788
10.5%
3,075
17,025
11.1%
3,485
24,395
14.0%
3,690
22,675
12.3%
(33,595)
(41,920)
(72,120)
(92,620)
(133,620)
(76,800)
(54,125)
0
(27,060)
0
(8,325)
0
(30,200)
0
(20,500)
0
(41,000)
0
4,613
0
10,788
0
17,025
0
24,395
0
22,675
0
na
0
na
0
na
35,875
70.0%
72,775
71.0%
110,700
72.0%
127,203
73.0%
136,530
74.0%
Year 13
Year 14
Year 15
320
100.0%
121
100.0%
(129,007)
(118,220) (101,195)
Unit Model: Cash Flow Analysis

Year 0
cash
flow
UnitFree
Level
Cash
Flow
Net income
[9]
Other Cash Infusions
Depreciation
[10]
[11]
Working capital
Free
cashCash
flow Flow
Unit
Level
Cumulative FCF
[12] Liquidity Event
Initial Investment
IRR
Cash-on-cash
47
3.0%
Year 1
Year 2
Year 3
Year 4
Projected
Year 5
Year 6
(3,007)
(1,097)
(2,430)
(27,060)
0
0
0
0
0
0
0
0
0
0
0
(3,007)
0
0
0
(1,097)
50
(105)
0
(2,486)
68
(91)
0
(27,083)
Year 7
(8,325)
32,000
87
(88)
0
23,674
Year 8
(30,200)
33,600
95
0
0
3,495
3,495
Year 9
(20,500)
0
120
0
0
(20,380)
(16,885)
Year 10
(41,000)
0
155
0
0
(40,845)
(57,730)
125,000
Year 11
4,613
0
1,025
(1,538)
(5,265)
(1,165)
(58,895)
Year 12
10,788
0
2,050
(3,075)
(5,476)
4,286
(54,609)
250,000
17,025
0
3,075
(4,613)
(5,687)
9,801
(44,808)
(45,000)
3-year
31.9%
2.4x
5-year
33.7%
5.5x

24,395
0
3,485
(5,228)
(2,548)
20,104
(24,704)
22,675
0
3,690
(5,535)
(1,495)
19,335
(5,369)
Defensible Projections Contain Unit Models Composed of Analogs
48

Phase 1d: Screening Enterprise-Level Cash Need
Template
Case:
Staples (A)
Analogs
Cases:
Just Grapes
Vision Enterprises
Wind O&M
FCF
Criteria
Unit Model
Rollup
Assumptions
Normalized SG&A
Investment
Assumptions
APV, NPV
Cases:
SLAB
Sunrise
HealthConnect
FCF and Real SG&A

Reference Analogs
Reference Analogs
Modified Roll-up
Total Build-up with
Effects of any JV
Case: All
Prose on decision
Cases:
AYS
Pay-Ease
Marketing Effects
Monitor
Investments
KPI
Case: All
49
Joint
Ventures
Cash Usage with

Lag
Case:
Life Sciences
IRR/CoC Table of
Returns - Common
Equity
Gantt Chart
Cases:
SenreQ
Marcia Radosevich
Life Sciences Comp.
Cases:
Vision Enterprises
Sunrise
HealthConnect
Editing
Marketing Options
Cases:
AYS
Life Sciences
Example: Direct
Brokered
Comparables
Negotiated Deal
Marketing
Research
Verification
Research Issues
Cases:
Sporting Goods
Pay-Ease
Plan
Case:
SenreQ
Marcia Radosevich
Life Sciences Comp.
Term Sheet
Budget

The Unit Model and Roll-up
The unit model is the building block that allows us to assemble

projections that reflect our best assumptions about:
50
Top line revenue
The expense structure of the overall enterprise
The actual CUMULATIVE cash needs, cash cycle, and the timing and
probable funding sources/investment requirements of the enterprise
over the life of the project

Step 3: Roll-up Model
Concept Behind Roll-up Model

Tie the Unit Model into a company-wide model, rolling up the Units at the
Unit Contribution level for all Units, then subtracting the real SG&A for the
year
Determine cash need
Want to provide funding for two units and a great management team
The Goal is to create more comprehensive and realistic financial statements

for monitoring
51

Rollout Schedule:
Health Payments Review (HPR) provides software solutions (Code Review) to
reduce healthcare claims cost by detecting and reporting improper or erroneous
numerical coding of physician claims.
Large reference accounts are 50% of the Top 100 Health Plan Providers.
We assume HPR software will become industry standard and will be
adopted by half of the large providers. The other half may be captured by
competitors.
Freedonia industry report estimates 3,000 health insurers in the U.S. We
assume HPR will start to win small accounts in Year 3 and by Year 8 we
target 1050 accounts, or 35% market share.
Roll Out Assumptions
Year 1
1
Year 2
4
Year 3
8
Num of New Small Acct
50
100
180
240
240
190
Total Number of Accounts
63
178
380
620
860
1,050
Num of New Large Ref Acct
Year 4
15
Year 5
22
Year 6
-
Year 7
-
Year 8
-
Year 9
1,050
Reference: Discussion with EPIC Claim Management Analyst
52

Year 10
-
Total
50
1,000
1,050
Roll-up Assumptions: Actual General and Administrative

Expenses are subtracted from the Sum of the Unit contribution
generated from all Units
Consolidated Roll-up: Assumptions
Year 0
[1]
[2]
[3]
[4]
[5]
[6]
[7]
[8]
[9]
[10]
CEO/President
CTO
CFO
COO
VP Business Development
HQ + R&D Ctr Rent and Other
Corp Selling & Marketing
Initial & Upgrade R&D
Ongoing R&D
[11] Total Revenue

[12] Unit Profit Contribution
150
125
125
125
125
3.0%
100
1%
Year 2
Year 3
Year 4
150
125
125
3.0%
100
3
155
129
125
125
129
3.0%
100
15
164
137
133
133
137
3.0%
100
141
169
141
137
137
141
3.0%
100
277
174
145
141
141
145
3.0%
100
375
30
148
159
133
129
129
133
3.0%
100
58
626
572
1,394
2,739
300
145
1,500
725
5,775
2,793
14,085
6,811
27,675
13,382
1251
9.9%
Projected
Year 5
Year 6
Year 1
Year 7
Year 8
Year 9
Year 10
184
154
149
149
154
3.0%
100
583
190
158
154
154
158
3.0%
100
612
196
163
158
158
163
3.0%
100
650
3,715
179
149
145
145
149
3.0%
100
483
626
4,776
5,774
6,054
6,437
37,530
18,148
48,252
23,332
58,335
28,208
61,161
29,574
65,027
31,444
Footnotes
[1] Source: salary.com
[6] Salary growth at inflation rate
[7] 5000 sq ft office in Boston. Rent is $20 sq ft / year
[8] Per unit sales cost is built into rollout of unit models. Use direct sale and small expense in corporate level sales and marketing.
[9] Initial R&D cost is estimated in Investment Breakdown in Appendix. Upgrade R&D occurs in Year 3 and 7 based on assumed product plan.
[10] Ongoing R&D cost is based on analog analysis
[11] Total revenue calculated in rollout schedule
[12] Total unit profit contribution calculated in rollout schedule. Normalized G&A and R&D expenses from unit level are not considered in this calculation.
53

Hypothetical Example Rollout of Unit Revenue
$504 represents the total revenue contributed in Y1Q2 by the 3 units

opened in Y1Q2
(i.e. 2 units in their 1st qtr of operation contribute 3*$168 of revenue)
Roll-out Schedule - Retail Stores

Y0
Unit Revenue
Y1
Y1
Y1
Y1
Y2
Y2
Y2
Y2
Y3
Y3
Y3
Y3
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Total Revenue
New Units
Opened
1
3
2
1
2
4
4
3
2
5
6
2
35
Y1 Q1
Y1 Q2
Y1 Q3
Y1 Q4
Y2 Q1
Y2 Q2
Y2 Q3
Y2 Q4
Y3 Q1
Y3 Q2
Y3 Q3
Y3 Q4
168
175
182
189
197
204
213
221
230
239
249
259
168
175
504
182
524
336
189
545
349
168
197
567
363
175
336
204
590
378
182
349
672
213
613
393
189
363
699
672
221
638
409
197
378
727
699
504
230
663
425
204
393
756
727
524
336
239
690
442
213
409
786
756
545
349
840
249
717
460
221
425
818
786
567
363
874
1,008
168
679
1,042
1,252
1,638
2,375
3,142
3,772
4,259
5,269
6,488
259
746
478
230
442
850
818
590
378
909
1,048
336
7,083
Unit Revenue is the revenue line from your unit

model. Its time scale is in reference to when the
unit was opened.
New Units Opened is the companys projected
expansion schedule (rollout schedule)
Total Revenue is the resulting consolidated
revenue given the above unit performance and
company expansion schedule
54
Strategies:
Change rollout numbers from managements
business plan based on analogs, if necessary.
(i.e. revise managements estimates)
Use rollout to observe valuation change due to
delays, missed milestones, sales force
underperformance.

Roll-up Model: Income Statement

(in $ millions)
1
Year
3
Revenue
Homes
Corporate
Total Revenue
4,734
93
$4,827
11,335
315
$11,650
21,494
833
$22,327
38,584
2,026
$40,610
64,605
4,219
$68,824
COGS
Direct Labor
Direct Materials
Total COGS
1,365
1,551
2,916
3,295
3,745
7,040
6,319
7,182
13,501
11,502
13,074
24,576
19,507
22,173
41,680
Gross Profit
1,911
4,610
8,826
16,034
27,144
Operating Expenses
Store Manager
In-Store Consultants
Rent Expense
244
398
150
792
576
961
350
1,887
1,081
1,843
650
3,574
1,926
3,355
1,150
6,431
3,202
5,690
1,900
10,792
Corporate Expenses
National Headquarter Rent
President
COO
VPs
Corporate Salespeople
Referrals & Other
National Marketing & Ads
Total Corporate Expenses
100
200
175
125
0
97
48
745
100
206
180
500
300
233
116
1,635
100
212
186
515
450
447
223
2,133
100
219
191
530
675
812
406
2,933
100
225
197
546
900
1,376
688
4,032
EBITDA
374
1,088
3,119
6,670
12,320
Depreciation
Amortization
67
141
165
329
320
611
582
1,081
988
1,786
EBIT
166
594
2,188
5,007
9,546
150
(210)
300
(74)
150
(85)
700
(171)
150
178
1,000
860
150
654
1,600
2,603
150
1,397
2,500
5,499
HPV Management Fee

Interest Expense
Owner's Consulting Contract
Taxable Income
55
Taxes
(29)
(69)
344
1,041
2,199
Net Income
(44)
(104)
516
1,562
3,299

Roll-up Model: Balance Sheet
Year
3
5,259
2,115
483
65
678
2,115
5,456
0
1,165
156
1,662
4,935
7,918
0
2,233
300
3,212
9,166
14,911
0
4,061
546
5,848
16,217
26,672
6,882
926
9,925
26,793
44,526
0
240
240
2,229
579
2,808
8,173
1,110
9,283
17,463
2,020
19,483
30,612
3,426
34,038
Open
Assets
Cash
Accounts Receivable
Inventory
Fixed Assets
Goodwill
Total Assets
Liabilities
Revolver
Accounts Payable
Total Liabilities
56
5,259
Shareholders' Equity
HPV Pref
Common Equity
Retained Earnings
Total Shareholders' Equity
5,309
250
(300)
5,259
5,734
250
(769)
5,215
6,192
250
(1,331)
5,111
6,688
250
(1,310)
5,628
Total Liabilities and SE
5,259
5,455
7,919
14,911
7,223
250
(284)
7,189
26,672
7,801
250
2,437
10,488
44,526

Roll-up Model: Cash Flow Analysis
1
Operations
Net Income
D&A
AR
Inventory
AP
Cash from Operations
Investments
Maintenance Capital Expenditures
Expansionary Capital Expenditures
Cash from Investments
Financing
Issue (Redemption) of Pref Shares
Issue (Redemption) of Common Shares
Dividends
Cash from Financing
Change in Cash for Period
Net Cash - Beginning of Period
Net Cash - End of Period
Year
3
(44)
208
(483)
(65)
240
(144)
(104)
494
(682)
(91)
339
(44)
516
931
(1,068)
(144)
531
766
1,562
1,663
(1,828)
(246)
910
2,061
3,299
2,774
(2,821)
(380)
1,406
4,278
(145)
(3,000)
(3,145)
(349)
(4,000)
(4,349)
(670)
(6,000)
(6,670)
(1,218)
(10,000)
(11,218)
(2,065)
(15,000)
(17,065)
0
0
0
0
(3,289)
5,259
1,970
0
0
0
0
(4,393)
1,970
(2,423)
0
0
0
0
(5,904)
(2,423)
(8,327)
0
0
0
0
(9,157)
(8,327)
(17,484)
0
0
0
0
(12,787)
(17,484)
(30,271)
Peak cash need

for given rollout
scenario
If we had a $100MM fund, could we afford to fund this investment?

What about a $200MM fund?
57

Conclusion
58
Very time consuming work, but necessary
Iterative process of trial and error that requires many adjustments throughout the
process
From here you are now in a position to do the financial valuations and evaluate
the deal based on SUCCESS methodology

Discipline and Detail help Us Avoid Lifes Little Hazards
59

Thank you.
Clinical Professor Scott F. Meadow
Commercializing Innovation: Tools to Research and Analyze
Private Enterprises

Meadow - I Love Cash Flow - Autumn 2011

Hochgeladen von

Dokumentinformationen

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Meadow - I Love Cash Flow - Autumn 2011

Hochgeladen von

Copyright:

Verfügbare Formate

I Love Cash Flow

Clinical Professor Scott F. Meadow

Discipline and Detail help Us Avoid Lifes Little Hazards

Clinical Prof. Scott Meadow

Entrepreneur and Investor: Issues impairing the partnership

Lack of transparency in the Companys forecasts

As variances occur, no foundation for editing the business concept

Clinical Prof. Scott Meadow

Roll-up Model: Income Statement

HPV Management Fee

Clinical Prof. Scott Meadow

Clinical Prof. Scott Meadow

Phase 1b: Screening - Analog Selection

FCF and Real SG&A

Cash Usage with

18 Month and 10 Year

Table of Returns Structured Deal

Clinical Prof. Scott Meadow

What is an Analog (Our Grains of Sand)?

Forecast the likely sales cycle of our customer

Hypothesize about the investment requirements we can anticipate

Clinical Prof. Scott Meadow

Step 1: Selecting Analogs

In the same line of business or industry

With similar cost structures

That pursue the same customers

Have comparable payment terms

Follow the same business and economic cycles

Require the same level of initial investment

Have grown or are projected to grow at the same rate

Clinical Prof. Scott Meadow

Some Key Resources

Clinical Prof. Scott Meadow

Some Key Resources :Secondary, Primary and Personal

Clinical Prof. Scott Meadow

Qualitative Analog Matrix for a Vertical Search Engine Venture

Clinical Prof. Scott Meadow

Quantitative Analog Matrix for a Vertical Search Engine Venture

Clinical Prof. Scott Meadow

Our House is Made of Individual Bricks

Clinical Prof. Scott Meadow

Phase 1c: Screening Development of Unit Model :We are not

FCF and Real SG&A

Cash Usage with

18 Month and 10 Year

Table of Returns Structured Deal

Clinical Prof. Scott Meadow

Overview of Unit Model (A Single Brick)

Does not include system-wide advertising, marketing or other SG&A

Analogs provide information on individual store (i.e. unit) operating

i.e. Margins and number of people employed

S-1 (filed at IPO) is typically the earliest source of public financials

Construct a Unit Model to Evaluate the Profit Formula of the

Clinical Prof. Scott Meadow

Step 2: Construct a Unit Model

Rely on personal experience and anecdotal evidence

Evaluating the Unit Model

Calculate 5 and 10-year IRR and Cash-on-Cash returns

Calculate 24 monthly columns for monitoring and editing purposes

Clinical Prof. Scott Meadow

Unit Model Summary (Primary Business Model for Wind Farm O

Depreciation & Amortization

Adjustments to Net Income for Unit Level Cash Flow: