Internet Entrepreneurship Team Financial model: 18 months operating costs

Magical 18 months

Money represents how much you want to raise, and the most important factor in determining this number is the need for money for an early team. We usually advise the team to use the 18-month operating cost to estimate this number, because 18 months is a better balance. If you use 12 months to estimate, if caught too tight, raise too little, it is likely that the founder will come out after six months to raise money, no way to concentrate on entrepreneurship, which is a loss for the company. If it takes 24 months, it's going to be the current valuation to raise the money needed after 2 years. But if things go well in two years ' time, the company's valuations should be at least 4-10 times the size of the present, which represents unwanted dilution and is a loss for entrepreneurs. Therefore, taking the middle 1.5 years is a better balance.

About Financial Models

Of course, as entrepreneurs, most of us have already developed "how much money to do how many things," the habit, so suddenly we have to catch 18 months to use the funds, for a while really do not know where to start. Here are a few key points:

1. What you are looking for is not the only solution, but a "scope";

2. It does not need to be perfect, and no one forced you to follow this budget table to carry out, entrepreneurial team is the most important is flexible, of course, can not be a financial model tied to death;

3. The increase in costs should be slower than the growth of revenue/margin, or it would be premature to scale.

Implementation

In practice, there are several ways to build this financial model. Some people will put the personnel, rents, operations, marketing, all spread out to predict, but I prefer to directly use the "Staff pay X multiplier" such a simple model. For Taiwanese companies, the multiplier is about 1.3 to twice times the size of your industry. Next, you need to go through the following three steps to get the money range you need.

Build the bottom line: you need to know how much money you need to live 18 months without total revenue or team growth.

Create a positive situation: assume a loose expansion team, but the revenue has not come in, 18 months you will spend how much money;

Add the net margin growth forecast: Suppose some revenue comes in, then deduct the cost of goods sold, 18 months total fund gap will have how much;

With the simple model I built above, the start-up team needs to raise at least NT $8 million. If revenue can come in as expected, 11 million will be able to cover the growth they want. And if the revenue comes in at a slower rate than expected, or if VC's interest is high, it's best to raise 20 million. Then they can adjust and decide the money they want to raise, depending on the pre-moneyvaluation they are willing to give and the percentage of dilution they can accept.