The moment you lay the map on the table, your team’s dream of financial freedom slipped their mind. They pay attention to what is in for them and it resonates with your plan to success in future. Investors appear to be optimistic of your vision to bring your business to the next level of Initial Public Offering (IPO).
A Funding Roadmap is like GPS for your business — it tells you where you are located financially and in which direction you are heading towards. If you want to ensure your company is heading in the right direction and that you are taking the right steps to achieve your long-term goal, a Funding Roadmap is a MUST to bring your business to next level.
Cash FundedOn™ is a timeline methodology used to create a business funding road map. It contains 9 categories in the map for a duration of 5 years:
1. Funding Stage (F)
There are five types of funding stages available to startups, depending on the industry and the level of interest among potential investors as your sources. It’s not uncommon for startups to engage in what is known as a “seed” funding or angel investor funding at the outset. These funding stages can be followed by Series A, B, and C funding rounds, as well as additional efforts to earn capital as well, if necessary. Series A, B, and C are necessary ingredients for a business that aims to level up, because merely surviving off the generosity of friends, family, and the depth of their own pockets, will not suffice. Series A, B, and C funding rounds are stepping stones in the process of turning an ingenious idea into a revolutionary global company, ripe for an IPO. Cash FundedOn™ for every stage are exhibit as
F1 = Angels Funding Stage
F2 = Equity Crowding Funding Stage
F3 = Series A Funding Stage
F4 = Series B Funding Stage
F5 = IPO Funding Stage
Projected income is an estimation of the financial results you’ll see from your business in the future. It is often presented in the form of an income statement. To create a projected income statement, it’s important to take into account revenues, which will subsequently be reduced by cost of goods sold, gross profit, and operating expenses. Cash FundedOn™ for every stage of its profits are exhibit as
P(F1) = Angels Funding Stage Profit Projection
P(F2) = Equity Crowding Funding Stage Profit Projection
P(F3) = Series A Funding Stage Profit Projection
P(F4) = Series B Funding Stage Profit Projection
P(F5) = IPO Funding Stage Profit Projection
Future goals that are set in a well-formed condition to achieve the desired profit and valuation outcome will be in your timeline. The timeline is stated in a year or more than 12-month periods for each row, with a total of 5 years overall. All entrepreneurs have goals and those who have their goals clearly set, tend to store them differently, internally from those who don’t. This is the timeline. What we have in the timeline is a way to program your future so that you achieve your goals, making what you want in the future turn into reality, and undeniably, strengthening your beliefs in accomplishments.
4. Capital Raised (CAP)
Having an idea is useless if one does not have enough capital to translate it into reality. It is believed that a business is almost impossible to start without money. Using up your savings is one option, but savings will eventually run out; thus using your organic profit is the second option, but it will slow down your desired growth and the market may have already been conquered by your competitors.
Therefore, raising funds through other sources is important in order to finance all your business activities. Choosing the right sources of financing is, however, critical in each stage of the capital-raising process because it is invariably the determinant of the success and growth of any business. Extraordinary capital raising skills are required for obtaining funds quickly and efficiently, through the most appropriate sources.
Be realistic about the amount of capital required. Optimism is a trait commonly found in entrepreneurs. However, the real world is often quite different from the record sales of the ‘unique’ product as well as the slow competitors that they envision. Therefore, the estimates about required capital should be made as realistic as possible so that enough money can be obtained. Otherwise, you are likely to make the usual mistake of asking for too little money for having a chance at success. The Cash FundedOn™ formula for Capital Raised at each stage is as follows:
CAP = V x S
Beginning with the end in mind of your IPO stage, your capital raised is:
CAP(F5) = V(F5) x S(F5)
5. News Shares Issued (S)
Share issue is the process by which companies pass on new shares to shareholders, who may themselves be new or existing shareholders. Companies can issue shares to both individuals or corporate bodies, and it will dilute the amount of existing shares. First stage would recommend around 10 to 20%, and an IPO at a certain stock exchange market may require a minimum 25% of new shares issued. The Cash FundedOn™ formula for new shares issued is:
S = CAP / V
The relationship between Capital Raised (C) with New Share Issued (S) is the exact % of Company Valuation. This means that the more capital you need, the more shares will be diluted from you. On the contrary, the higher your company valuation, the lesser new shares issued – which means you don’t need to dilute too much of your shares for new investors to join your cause. This simply means you only need to dilute a small fraction of your shares to raise the exact amount of capital you need if your valuation is high enough.
6. PE Ratio (PER)
This is the ratio of a company’s share (stock) price to the company’s earnings per share. The ratio is used for valuing companies and to find out whether they are overvalued or undervalued.
Price-Earning Ratio = Share Price / Earning per Share
It can be interpreted as the amount of time over which the company would need to sustain its current earnings in order to make enough money to pay back the current share price. The price/earnings ratio (PER) is the most widely used method for determining whether shares are “correctly” valued in relation to one another. However, the PER does not show an indication whether the share is a bargain. The PER depends on the market’s perception of the risk and future growth in earnings. A company with a low PER indicates that the market perceives it as higher risk or lower growth or both, as compared to a company with a higher PER. The PER of a listed company’s share is the result of the collective perception of the market as to how risky the company is and what its earnings growth prospects are in relation to that of other companies. Therefore, in the early stages, PER tends to be lower as the PER will be raised before the IPO.
PER(F1) < PER(F2) < PER(F3) < PER(F4) < PER(F5)
Example : Angels Stage PER < IPO stage PER
Investors use the PER to compare their own perception of the risk and growth of a company against the market’s collective perception of the risk and growth, as reflected in the current PER. If investors believe that their perception is superior to that of the market, they can make the decision to buy or sell accordingly. The average U.S. equity PER from 1900 to 2005 is 14 to 16. From 2010 to 2018, the PER is between 16 to 22. The PER of Companies have similarities if they are within the same industries. Once the IPO has been raised, you would expect a significantly higher PER – for example, the PER for Facebook in 2013 is at a high of 107.88!
This is the general process of determining the economic value of a whole business or company unit. Business valuation can be used to determine the fair value of a business for a variety of reasons, including sales value, establishing partner ownership, taxation, and even divorce proceedings.
Several methods of valuing a business exist, such as looking at its market capitalisation, earnings multipliers, or even book value, among others. The Cash FundedOn™ formula for Valuation is:
V = P X PER
A company with higher profit and in being in a favourable industry with higher PER would generally be given a higher valuation. Companies without profit will have no value, which makes it unrealistic for a startup company or a company who needs more than a year to be profitable, to use this valuation method.
8. Investment Value of IPO (VIPO)
Pre IPO companies can actually deliver extremely high returns. In the last 10 years, and after the dot-com bubble burst of the early 2000s, there has been a draught of high-flying companies deciding to undergo a public offering. That somehow, has changed recently. 2019 has marked an inflection point in this trajectory with multiple noteworthy IPOs in the U.S. such as from Lyft, Uber, Cloudflare, Pinterest, Beyond Meat, Slack, PagerDuty, Zoom, Crowdstrike, and even more.
Ever heard of Masayoshi Son? Well, Masayoshi Son is sometimes known as the Warren Buffett or Bill Gates of Japan. It is impressive how Son had such brilliant insights of pumping $20 million from his company into an emerging Chinese Internet ventre 14 years ago. This was a risk not even taken by neither Warren Buffet nor Bill Gates, ever before! This Chinese venture was the Alibaba Group. At IPO, Alibaba Group was assured to sell shares to the public on the New York Stock Exchange, by which the value of that investment was set to $50 billion. So, guess what was the investment value of the IPO of Alibaba Group 14 years ago? $50 billion! Imagine how much is that!
In short, the investment VIPO is the Future value of a Company at the pre-IPO stages that you decided to invest in as of now.
The Cash FundedOn™ for the investment VIPO at 1st funding stage is
VIPO(F1) = S(F1) x [1 – S(F2)] x [1 – S(F3)] x [1-S(F4)] x [1-S(F5)] x V(F5)
As for the consequent stages, the investment VIPO are:
VIPO(F2) = S(F2) x [1 – S(F3)] x [1 – S(F4)] x [1- S(F5)] x V(F5)
VIPO(F3) = S(F3) x [1 – S(F4)] x [1-S(F5)] x V(F5)
VIPO(F4) = SF4 x [1 – S(F5)] x V(F5)
VIPO(F5) = Not Applicable
The ROI measures the gain or loss generated on an investment relative to the amount of money invested. ROI is usually expressed as a percentage and is typically used for personal financial decisions, to compare a company’s profitability or to compare the efficiency of different investments.
The ROI that Son made is 2,500 times within 14 years. He invested just $20 million, but his ROI was a whopping $50 billion!!!
With Cash FundedOn™, the ROI could be calculated with the following formula:
ROI = VIPO / CAP
The Secret of Creating Your Future – author and master trainer, Dr Tad James, who successfully trained people in reaching their goals successfully, has said 3 important things: (i) take responsibility for where you are, (ii) write down what you want, and (iii) program your future by creating memories for your future timeline.
With that being said, here are the 9 Cash FundedOn™ steps that must be followed in sequence for you to create a well-defined funding roadmap:
1. Set GOALS SMART
2. Program your TIMELINE
3. Know your VALUE
4. Begin with IPO in Mind
5. Be Resourceful of NEW SHARES
6. Estimation of PE RATIO
7. Your CAPITAL is VALUATION
8. Investors future VALUE at IPO
9. TIMES of ROI
1. Set GOALS SMART
If you have done a 5-year profit projection consciously using a spreadsheet, you are now one step into mapping your Funding Road Map! However, did you know that it has been scientifically proven that your unconscious mind is actually more powerful than your conscious mind? Therefore, it is also a good idea to use your unconscious mind to write your goals.
Be double SMART when you write your goals of your profit projection.
S = Specific, Simple
M = Measurable, Meaningful
A = As of now, Attainable
R = Realistic, Responsible
T = Timed, Toward what you want
So, turn to a blank page in your notebook, close your eyes, and in your mind, imagine yourself walking into the future. In your mind, walk into the future of your timeline, for five years. The CFO wants you to get into the big picture, discover what the future could really bring you. On the way back from 5 years, you pause a moment at each of the major milestones to write. Just stop at any year you want. Stop, and look around. Once you have a picture of your goals, the process becomes relatively easy. All you have to do is WRITE. You start writing, pages and pages of goals for five, four, three, two, and one year(s), then three and one month(s). And as you write, remember, keep it SMART.
2. Program your TIMELINE
The timeline is how you store your memories, it is how you differentiate the past and future. As you struggle to understand how your memory is organised, you should explore it 100% by constantly asking yourself questions, or let a CFO coach you.
“Let us just suppose for a moment that you knew your unconscious mind could tell you how it stores your past and your future. And if you know that now, could you point to what direction your past is?”
“Right, and where is your future?” and you will feel your hand go up.
“That is your timeline. It does not have a straight line but there is an implication of a line there. Do you understand?” and you will begin noticing that.
As you start discovering how your memory was organised in the past, you should determine how to clean it. Yes, it is highly crucial to clean up the past. If you have certain beliefs that are not supportive to what you have written in relation to what you want in the future, then you’re most probably not going to have what you want. So, clean up your past – including your beliefs, attitude and your decisions, so that you can align the past with what you want in the present and the future.
It is important to know what you want in any situation. To master the Cash FundedOn™ you must decide what you want in advance, and this is not just about the money you want to raise. The most crucial step of all 9 is to KNOW YOUR OUTCOME, WRITE THAT DOWN.
“NOW close your eyes”, the CFO would continue asking “I would like you to make a picture of what you just wrote. Can you make a picture of it?”.
“Good, Just make a mental picture of what you wrote. Picture it in your mind’s eyes”
”In the picture you make, I want you to picture it in a way so that you know you have it. If it is a process, picture it at the end of the process. Picture it so you know it is complete. Does that make sense?” you would nod your head as you see that picture and see yourself in the picture. Make sure you see your body in the picture.
“Take the picture with you, and get up above your TIMELINE. Put the picture out in the future, sometime next week, whenever it would be most appropriate for accomplishment”
“Flow up above your TIMELINE, take the picture and drop it down along with other pictures that are there in the future. And as you do, notice that the events between then and now which are necessary to support making this event undeniable occur, are created and align themselves to support that particular goal happening automatically”, the CFO speaks so fast you are not sure what he said. But as the CFO finished speaking, you started noticing the events in your TIMELINE changing and rearranging, and wondered what that is? As the rearrangement has completed, the CFO then said “when you have finished, come back to now and flow down into the room now.”
As Stephen Hawkings said, “The past, like the future, is indefinite and exits only as a spectrum of possibilities.” You should consider this, as you went back into the past and looked at it, you see lots of memories back there, right? What if everything you program in your future is going to happen, just as how everything in the past is something that has already happened? That means there is predestination of the road in your life. But you have the power to decide what you want in the future. With a TIMELINE, you can decide what is going to happen and when it will happen.
3. Know your VALUE
You have your projected revenues and profit from Step 2. Now, you could know your value by determining your PE ratio (PER).
V = P X PER
For example, your Stage 1 (F1) projection is $1 million, but you decided to quit the business as it is now you want it to be sold for $2 million. Since your Valuation is $2 million, your PER is 2. If your PER is 10, it means you are willing to exit at 10 times of what you are enjoying in profit today. This is because you believe that the business could make the same profit together with you. Of course with whoever that believes in you, will have a stronger belief that your business is worth more than just 10 times.
So, you will hear the CFO telling you ”As you know, fill up P(F1) to P(F5) , then fill up PER(F1) and calculate V(F1)”. Just do as he says, and you should be good to proceed to the next step!
4. Begin with IPO in Mind
Your wishful thinking should all relate to the amount of cash out at the end of business, available for you and your people who are responsible. It is good that your business is infinite, and you should always begin your business with an end value in mind. That represents your V(F5).
Be realistic with your PER, and clearly identify your industry and its competitors. What is their PER? How should you know that you are having the right or reasonable PER?
So, just follow the CFO, “As you know at IPO stage, fill up PER(F5) and calculate V(F5)”.
5. Be resourceful of NEW SHARES
What is the amount of the new shares issued? How much are you willing to dilute in exchange for new capital from F1 to F5? At this step, do not think of the capital you need yet. Money is a result of your beliefs, decisions, and your thoughts about it. So, do not ever cross your mind that, “I will value my company depending on how much you are willing to invest in the company”. Apply resourcefulness.
Bear in mind that you should not lose control of the company and there should be a legal mechanism that works for you as a founder. Always beware of this!
”Consciously, fill up S(F1) to S(F5), sum up S as well at the bottom row”, the CFO instructs you.
6. Estimation of PE Ratio
At Step 4, you have determined the PER(F5), and now, ask your unconscious mind to walk back from the end of the Funding Road Map: what is the PER for F4, F2 and F3? The numbers should be not greater than the end. The reason is simple, no investors are willing to settle for lower valuation after they have invested in you.
So, follow the CFO, ”As where you are now, fill up PER(F4) to PER(F2)”.
7. Your CAPITAL is VALUATION
Apply the Cash FundedOn™ Formula, V = P X PER and CAP = V X S, you generate V and CAP for stages from F2 to F4.
You will realise that your capital is mapping across your valuation. Is this valuable? The CFO knows that, and you now know how easy it is to raise capital that you want.
”Apply the formula, count the V(F2) to V(F4) and CAP(F2) to CAP(F4)”, said your CFO, so do as he said!
8. Investors future VALUE at IPO
The amount of money you invest now is what you are eventually going to gain in the end. Therefore, the Cash FundedOn™ resonates with Investors at different stages, and each stage will get their respective value as a VIPO. This VIPO concept is based on the future value of money, and it works well to attract the right investors at various stages. However, note that VIPO(5) is not applicable in Cash FundedOn™.
So, to get the VIPO, the CFO will tell you ”Apply the formula, generate VIPO(F1) to VIPO(F4)”.
9. TIMES of ROI
What investors find compelling is when their return of investment (ROI) is more than triple or even 10 fold. This could be seen clearly at the end of the Cash FundedOn™ column. The formula consciously stated that ROI = VIPO / CAP.
”Apply the formula, fill the times of return as ROI. walk through ROI(F4) to ROI(F1)”, do as the CFO says, and there you have it, the times of ROI!
By now you should have a clear view on how a Funding Road Map is created. You can also refer to the video below:
This is what happened to Dr Jacob – he did not realise that he had a bad experience with his candy stall partner during his adulthood. Anger, betrayal and sadness of that event is what shaped him today. The CFO took a few minutes to coach him to delete the negative emotions before programming his future TIMELINE and filling up the Funding Road Map. After 7 months of his successful 1st round funding, the 2 Venture Capital Firm was knocking on Dr Jacob’s door, waiting for 2nd round funding. The VCs rush in is not because his company was undervalued, but the reason was that the revenues were 3 times over his original forecast, and the company was not making any profits yet.