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Summary Self study Entrepreneurial Finance - Ine Paeleman - UA - 2024 R118,99
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  3. Universiteit Antwerpen (UA)
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  5. Toegepaste Economische Wetenschappen: Bedrijfskunde
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  7. Entrepreneurial finance

Summary

Summary Self study Entrepreneurial Finance - Ine Paeleman - UA - 2024

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  • Course
  • Entrepreneurial finance
  • Institution
  • Universiteit Antwerpen (UA)
  • Book
  • Entrepreneurial Finance

This document includes chapters 10, 11 and 18 of the entrepreneurial finance course taught by Prof Ine Paeleman at the University of Antwerp. These self-study chapters.

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Document information

  • No
  • Hoofdstuk 10, 11 en 18
  • April 15, 2024
  • 26
  • 2023/2024
  • Summary

Subjects

  • corporate governance
  • metrics
  • monitoring
  • the future of entrepreneurial finance

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  • Universiteit Antwerpen (UA)
  • Toegepaste Economische Wetenschappen: Bedrijfskunde
  • Entrepreneurial finance
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Self-study entrepreneurial finance

Chapter 10: Monitoring tactics and key metrics
Investors:

 Need to know what is going on in the companies: monitor whether the company is
developing well.  only possible if the startup provides relevant information  requires
regular reports from entrepreneurs: lens to understand the progress.
o Quality of reporting is really important!

Entrepreneur:

 Find out whether the company is on the right track.
 Enforce discipline.
 Base important decisions on facts.
 Regular reports are advisable: every core component of the business model should be
monitored  compare with assumptions and adapt if needed.
 Good data analysis = powerful tool.



Business planning as the starting point for all monitoring and reporting

Main goal of business planning = creating confidence.

 Comparing plans with real outcomes helps gaining confidence in the business model.
 Allow investors, suppliers, employees and other stakeholders to become confident in the
future success.

Starting point of all reporting activities. Planning horizon 3-5 years and describes the idea
comprehensively, including financial plans and targets.

 Translate the idea into a business model: how will the venture make money? Customers?
Offerings? Costs and revenues?
 Marketing document to get support from stakeholders (mainly: investors):
o Point of departure for the evaluation of the venture;
o Determines investors’ expectations.
o Make the interactions between the founders and investors easier.
o Highlights the factors that will lead to success.
o State the assumptions  so that investors can form their own judgements on the
viability.
o Openly discuss and communicate the risks and use appropriate risk management.

Later on: ongoing controlling and reporting system.

 Constantly check assumptions, target fulfilment and adapt to new market conditions.



Reporting practices in European startups

Some general observations:

 Depending on legal form of startup, some degree of reporting is mandatory in EU.

, o However, mostly limited to annual report, shareholder meeting and accounting
numbers.
 Dominant principle: compliance to accounting standards: but comes too late:
focuses on past performance, not forecasting future performance.
 The unit of analysis is the whole company, not a unit/business model/
customer segment/ …

 Frequently almost impossible to derive information on the success of
individual products/business models/ strategies.

o And most startups do not report beyond legal requirements!
 Reasons: not knowing what investors expect, takes up too much of their
time, not knowing what metrics, mistakenly believe investors only want to
hear good news, …
o When professional investors are involved: standardized reporting practices are the
norm.
 Investment contract specifies guidelines on reporting (form, timing, content)
 Standard practice: monthly & written.
 Business associations provide guidelines: voluntary, encourage thorough
reports.
 Often requiring investors to give feedback: two-way communication.
o Reporting is not only written: often complemented with verbal reporting.
 Meetings and calls.
 Cannot replace written reports!
 The board time is valuable: send out reports in advance and use board time
to discuss points that require further clarification.



Quantitative reporting practices:

Essential part of reporting: metrics and key ratios.

 Input-oriented (f.ex: how many people the company employs)
 Output-oriented (f.ex: sales)
o Revenue run rate = how are sales developing over time? Is the business scaling well?
 Meet forecasts?
 Seasonal patterns?
 Stable growth rates?
o Average revenue per user
 Can be broken down by channel or segment.
o Net revenue = excludes VAT and other returns that will not lead to income streams
for the firm.
 Metrics on the costs associated with generating revenue.
o CAC
 Monitor how efficient the sales process and sales team are.
 May go down over time with better brand awareness and improved sales
processes  improve profitability.
o Churn rate = % of customers a company loses per month or per year.
 = 1- retention rate.

,  Shows whether the startup is able to keep the customers it has acquired.
 The lower the better = loyal and satisfied customers.
 Also relevant: the trend in churn rate! Should descend over time.
o Customer profitability: very important! Illustrates that the company is able to make
money from its customers.
 Financial success measures: valuation and chances of survival. (most financial metrics apply
to both dimensions).
o Cash flow: cash is king!
 May be negative, if external funding to finance growth is provided in time.
o Burn rate:
 Describes a negative cashflow situation: money outflows > inflows.
 How much time remains before the startup’s current funds are spent and the
company runs out of money.
o Absolute profits and profit margins per product or service: indicator that there are
challenges: too high administrative costs, too much spending on scaling, too low
prices, …
 Compare with industry benchmarks! (however: each venture has specific
characteristics!)



Qualitative reporting practices

= Helps to interpret quantitative statements and describes the situation more comprehensively.

 Usually includes monthly mail to investors with a general outline: progress of the venture,
challenges, current focus, potential contingency plans, …
o A description of different areas may be included as well.
 Often: highlights for each domain in concise bullet-points.
 Typically focus on positive aspects and progress  impressing and conveying
enthusiasm.
 Balanced picture could be better: where can the investors support?
 Some success factors of startups do not readily translate into metrics!
o A lot of elements of the strategy cannot be captured in quantitative metrics: general
market trends not captured by KPI’s, quality of leadership, progress on innovation
projects, customer insights, …
o Business functions like HR: employee satisfaction, …
o Competitive threats: new competitors/technologies  report on what’s happening
and potential counter measures.



Key metrics

Measuring performance as the ultimate goal

Why?

 Guide you in strategic decision-making and show whether your business model is working.
o Might indicate that you need to change direction.
 Helps monitoring employee performance and effectiveness  manage business in a more
objective way.

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