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FINANCING THE BUSINESS

AN OVERVIEW

Robert H. Hacker rhhfla@mindspring.com http://sophisticatedfinance.typepad.com © All rights reserved


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HOW MUCH MONEY TO RAISE

Year 1 Year 2 Year 3 Year 4 Year 5


Revenue 1,000,000 3,000,000 8,000,000 15,000,000 25,000,000
EBITDA (750,000) - 500,000 1,500,000 3,750,000
Capital Required (1,000,000) (500,000) (500,000) - -
Cushion (500,000) (500,000) (1,000,000) (500,000) -
Total Capital (1,500,000) (1,000,000) (1,500,000) (500,000) -
Cumulative Capital (1,500,000) (2,500,000) (4,000,000) (4,500,000) (4,500,000)

Robert H. Hacker rhhfla@mindspring.com http://sophisticatedfinance.typepad.com © All rights reserved


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HOW MUCH MONEY TO RAISE

•“INFLECTION POINTS”
•EBITDA > 0
•AMOUNT INVESTOR WANTS TO
INVEST
•STAGED INVESTMENT

Robert H. Hacker rhhfla@mindspring.com http://sophisticatedfinance.typepad.com © All rights reserved


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VALUATION
•DISCOUNTED CASH FLOW
•EBITDA MULTIPLE

Robert H. Hacker rhhfla@mindspring.com http://sophisticatedfinance.typepad.com © All rights reserved


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EBITDA VALUATION
• EBITDA=EARNINGS BEFORE
INTEREST, TAXES, DEPRECIATION,
AMORTIZATION

Robert H. Hacker rhhfla@mindspring.com http://sophisticatedfinance.typepad.com © All rights reserved


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INCOME STATEMENT
FEDERAL EXPRESS CORP
(UNAUDITED)
(IN MILLIONS)
Three Months Ended
August31,
2008 2007
REVENUES $ 6,360 $ 5,851
OPERATING EXPENSES:
Salaries and employee
benefits 2,080 2,013
Purchased transportation 318 279
Rentals and landing fees 413 408
Depreciation and
amortization 237 227
Fuel 1,319 800
Maintenance and repairs 393 401

Intercompany charges, net 531 514


Other 735 700
Total Operating Expenses 6,026 5,342
OPERATING INCOME 334 509
OTHER INCOME
(EXPENSE):
Interest, net (2 41
Other, net (3 (48
Total Other Income (5 (7
INCOME BEFORE INCOME
TAXES 329 502
PROVISION FOR INCOME
TAXES 132 182
NET INCOME $ 197 $ 320

Robert H. Hacker rhhfla@mindspring.com http://sophisticatedfinance.typepad.com © All rights reserved


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EBITDA MULTIPLES
• 1-2 SLOW GROWTH, LOW MARGINS
• 3-4 HIGH RISK
GOOD MARGINS/GROWTH
• 6-8 U.S.,EUROPE, JAPAN GOOD
MARGINS/GROWTH
• 8+ GREAT OPPORTUNITY
IMPROVED PERFORMANCE

Robert H. Hacker rhhfla@mindspring.com http://sophisticatedfinance.typepad.com © All rights reserved


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CAPITAL EFFICIENCY

VC CompanyPerformance
Multipleof SaleMultiple EbitdaMargin $SalesRequired
Investment $ Ownership Investment Year5 Year5 Year5
3,000,000 40% 10 8.00 10% 93,750,000
3,000,000 40% 10 8.00 20% 46,875,000
2,000,000 40% 10 8.00 10% 62,500,000
2,000,000 40% 10 8.00 20% 31,250,000
1,000,000 40% 10 8.00 10% 31,250,000

Robert H. Hacker rhhfla@mindspring.com http://sophisticatedfinance.typepad.com © All rights reserved


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SOURCES OF STARTUP CAPITAL

TYPES OF CAPITAL PROS CONS


BANK DEBT CHEAP NEED COLLATERAL
DEEP POCKETS VARIABLE COST
NO EXIT ISSUES NO MENTORING
FRIENDS &FAMILY CHEAP LITIGATION
NO BUSINESS PLAN REPUTATION
SHALLOWPOCKETS NO MENTORING
NO EXIT ISSUES
ANGELS MENTORING SEMI-PROFESSIONAL
LIKE SEED FICKLE
~INDUSTRY EXPERTISE
LIMITED POCKETS
EXIT ISSUES
VENTURE CAPITAL PROFESSIONAL FIRE CEO
LONG TERM SERIOUS DILUTION
INDUSTRY EXPERTISE EXIT IN 5 YEARS
MENTORING
DEEP POCKETS

Robert H. Hacker rhhfla@mindspring.com http://sophisticatedfinance.typepad.com © All rights reserved


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