Startup & E-Commerce Financial Model & Valuation Course Presentation

Startup / e-Commerce Financial Model & Valuation
corporatefinanceinstitute.com
Table of Contents
Introduction Instructor Introduction to Key valuation

biography e-Commerce metrics
Assumptions Income Balance Sheet Supporting

Statement Schedules
Cash Flow Customer Valuation Charts & Graphs

Statement Metrics
Corporate Corporate
Development Development
Tim Vipond
Lead Instructor
Corporate Finance Institute
Investment Investment
Management Banking
By the end of this course you will be able to:
Build out the key Develop an income Calculate the value of the e-
assumptions and drivers of statement, balance sheet Commerce business
an e-Commerce business and cash flow statement
Analyze key customer

Create charts and graphs to
metrics and unit
show your results
economics
This course will give you an understanding for:
eCommerce based:
• Investment banking
• Equity Research
• Corporate Development
• FP&A
• Treasury
Course Introduction
Your final product will be a

$35 sophisticated, beautiful model, that 100%
properly identifies all drivers, risks, and
$30 financial returns
75%
$25
Revenue ($ millions)
$20
50%
EBITDA Margin
$15
$10 25%
$5
0%
$0
-$5
-25%
-$10
-$15 -50%
2016E 2017E 2018E 2019E 2020E 2021E 2022E
Introduction to e-Commerce
Introduction to eCommerce
Literally, commercial transactions (good/services) conducted over the

internet
Now it’s more the convergence of online and offline retail
Examples include:
Online marketplaces, (third-

Retail sales direct to customers party business-to-customer or Business-to-business
customer-to-consumer)
Introduction to eCommerce
Driving forces behind the e-Commerce evolution
• Aging population • Convenience

• Female workforce • Personalization
• Urbanization • Health & wellness
• Wealth gap • Sharing economy
• Millennials • Shopping experience
• Smaller households • Discovery
Demographics Consumption • Customization
• Simplification
• Mobile
• 3D printing
• Advanced analytics Technology Structural • Direct to consumer
• Social media Shifts • Consolidation to
• AI achieve scale
• Internet of things • Winner take all
• VR strategies
• Wearables
Key Terms
Site Traffic Conversion Rate Bounce Rate Order
The number of The % of customers The % of visitors who A single checkout

visitors to a site who place an order enter the site and then which may consist
relative to the total leave ("bounce") rather of multiple items
# of site traffic than continuing on to
view other pages
Churn Organic Search Paid Search Affiliates
The annual % of Traffic from search Traffic from Paid traffic from
customers who engines that is not search engines another site
stop shopping paid for that is paid for
the site
Key Valuation Metrics
Overview
Customers Financials
Active Customers Gross Merchandise Value
Churn Gross Profit/Margin
Average Order Value (AOV) Sell-Through Rate
Life Time Value (LTV) EV/Active Customers
Customer Acquisition Cost (CAC) EV/Revenue
Total Addressable Market (TAM) EV/Gross Profit
Average Revenue Per User (ARPU) EV/EBITDA
Net Promoter Score (NPS) LTV/CAC
Customers
Active Customers Churn Average Order Value Life Time Value
(AOV) (LTV)
# of customers who % of customers who
# of items per order Net present value of
ordered in last 12 are no longer active
times price per item contribution margin
months at the end of 12
per customer
months
Customer Total Addressable Average Revenue

Net Promoter Score
Acquisition Cost Market Per User
(CAC) (TAM) (ARPU) (NPS)
Cost to acquire new Annual value of all Total revenue Survey of how likely
customers goods/services in divided by # of users customer are to
market refer someone
Financials
Gross Profit/Margin (what’s included i.e.

Gross Merchandise Value vs Revenue
shipping)
GMV = the value of all goods sold on a site Shipping/fulfilment can be above or below
(i.e. Amazon) Gross Profit
Sell-Through Rate = percent of inventory sold over a period of time
EV/Active Customers EV/Revenue EV/Gross Profit EV/EBITDA
(Equity + Net Debt) (Equity + Net Debt) (Equity + Net Debt) (Equity + Net Debt)
# of active Revenue Gross Profit Earnings Before

customers Interest Tax
Depreciation &
Amortization
LTV/CAC
400%
LTV Contribution Per Customer * Ave. Customer life

=
CAC Customer Acquisition Cost
300%
200%
Example
• Product sold for $1000 annually
• 70% contribution margin
• Customer churn 20% annually (5-year average
100% life)
• Cost $500 to acquire customer
LTV $700 x 5
= = 7x
CAC $500
0%
1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 89 93 97
-100%
Assumptions
Order build up
Order Build Up
Email Organic search Paid search Affiliates
# of orders placed (by channel) Markdown%

Conversion rates
# of items per order Discount %
# of orders per 100 visits
Item value (full retail) Product margin %
Customers
Corkscrew calculation
Opening New Churned Closing

balance Customers customers balance
Variable and Fixed Costs
Variable Costs Fixed Costs
Marketing Fulfilment
Unit costs Warehouse

Cost per click
By channel G&A
Rent
Fulfilment
Salaries
Shipping per order Technology
Labour/Handling Other
Balance Sheet Items
Working Capital
Capital Assets
AR days
AP days Depreciation
Inventory day / turns
Financing
Capex Line of credit
Technology Equity
Equipment Dividends
Balance Sheet
Income Statement
Income Statement
Key Items Items to Link Later
Gross revenue Depreciation
Discount Interest
Net revenue
COGS
Variable cost
Fixed cost
Balance Sheet
Balance Sheet
Key Items Items to Link Later
Accounts receivable & Inventory Technology
Accounts payable Property and equipment
Share capital Line of credit / Debt
Retained earnings
Session objectives
Use affordances to make Make the information The importance

The 3 A’s messages intuitive accessible to all of aesthetics
Supporting Schedules
Capital Assets
Corkscrew
Opening balance
Additions
Depreciation
Closing balance
Debt
Corkscrew calculation
Calculate interest
Balance Sheet
We can now link the remaining items
Technology
PP&E
LOC/Debt
Income Statement
We can now link the remaining items
Depreciation
Interest
Cash Flow Statement
Cash Flow Statement
Cash from Operations
Link net income, depreciation

Cash from Financing
Calculate changes in non cash
working capital
Change in Debt
Cash in Investing Change in Equity
Link capex and acquisitions Dividends
Customer Metrics
Customer Metrics
CAC LTV
Marketing spend divided by new CM per order divided by churn rate

customer orders (perpetuity calc.)
LTV/CAC Ratio
CM per Order
Payback (years)
Revenue less all variable costs
divided by # of orders
Valuation
Valuation
Free Cash Flow NPV Ownership
Net income Present value of forecast

How much does start up capital
EBIT Terminal Value dilute ownership?
Cash taxes (include NOL) Enterprise value
Changes in NWC EV/Revenue
Unlevered Free Cash Flow
Charts & Graphs
Charts
$45 100% $9
Revenue EBITDA Margin Burn Rate Cash Balance
$35 75% $7
$25 50% $5
Burn ($ millions)
EBITDA Margin
$3
$15 25%
$1
$5 0%
-$1
-$5 -25% -$3
-$15 -50% -$5
2016 2017 2018 2019 2020 2021 2022 2016 2017 2018 2019 2020 2021 2022
$200 Customer Acquisition Cost 5.0 $600 Customer Acquisition Cost 5.0x
Contribution Margin Life Time Value
4.0 $500 4.0x
$150
$400
3.0 3.0x
LTV/CAC Ratio
Payback (# orders)
$100 $300
2.0 2.0x
$200
$50
1.0 $100 1.0x
$0 0.0 $0 0.0x
2016 2017 2018 2019 2020 2021 2022 2016 2017 2018 2019 2020 2021 2022
Charts & Graphs
Charts
$45 100% $9
Revenue EBITDA Margin Burn Rate Cash Balance
$35 75% $7
$25 50% $5
Burn ($ millions)
EBITDA Margin
$3
$15 25%
$1
$5 0%
-$1
-$5 -25%
-$3
-$15 -50% -$5
2016 2017 2018 2019 2020 2021 2022 2016 2017 2018 2019 2020 2021 2022
$200 Customer Acquisition Cost 5.0 $600 Customer Acquisition Cost 5.0x
Contribution Margin Life Time Value
4.0 $500 4.0x
$150
$400
3.0 3.0x
LTV/CAC Ratio
Payback (# orders)
$100 $300
2.0 2.0x
$200
$50
1.0 $100 1.0x
$0 0.0 $0 0.0x
2016 2017 2018 2019 2020 2021 2022 2016 2017 2018 2019 2020 2021 2022
Thank you
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Startup / e-Commerce Financial Model & Valuation

Introduction Instructor Introduction to Key valuation

Assumptions Income Balance Sheet Supporting

Cash Flow Customer Valuation Charts & Graphs

Analyze key customer

Your final product will be a

Literally, commercial transactions (good/services) conducted over the

Now it’s more the convergence of online and offline retail

Online marketplaces, (third-

• Aging population • Convenience

Site Traffic Conversion Rate Bounce Rate Order

The number of The % of customers The % of visitors who A single checkout

Churn Organic Search Paid Search Affiliates

Churn Gross Profit/Margin

Average Order Value (AOV) Sell-Through Rate

Life Time Value (LTV) EV/Active Customers

Customer Acquisition Cost (CAC) EV/Revenue

Total Addressable Market (TAM) EV/Gross Profit

Average Revenue Per User (ARPU) EV/EBITDA

Net Promoter Score (NPS) LTV/CAC

Active Customers Churn Average Order Value Life Time Value

Customer Total Addressable Average Revenue

Gross Profit/Margin (what’s included i.e.

Sell-Through Rate = percent of inventory sold over a period of time

EV/Active Customers EV/Revenue EV/Gross Profit EV/EBITDA

# of active Revenue Gross Profit Earnings Before

LTV Contribution Per Customer * Ave. Customer life

Email Organic search Paid search Affiliates

# of orders placed (by channel) Markdown%

Opening New Churned Closing

Variable Costs Fixed Costs

Unit costs Warehouse

Shipping per order Technology

Inventory day / turns

Capex Line of credit

Key Items Items to Link Later

Gross revenue Depreciation

Key Items Items to Link Later

Accounts receivable & Inventory Technology

Accounts payable Property and equipment

Share capital Line of credit / Debt

Use affordances to make Make the information The importance

Cash from Operations

Link net income, depreciation

Cash in Investing Change in Equity

Link capex and acquisitions Dividends

Marketing spend divided by new CM per order divided by churn rate

Free Cash Flow NPV Ownership

Net income Present value of forecast

Cash taxes (include NOL) Enterprise value

Changes in NWC EV/Revenue

Unlevered Free Cash Flow

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