This is an Internet venture that, of course, depends on the developing financial prospects of the growing Internet world. To make it work financially, we need to increase valuation on schedule to bring in substantial additional capital. The following table defines the investment offering for investors. Specifically:
The general assumptions are listed in the following table. Obviously these are detailed financial assumptions, trivial compared to the underlying critical assumptions, which include:
The following benchmarks chart indicates a very ambitious increase in sales and matching increases in operating expenses. We expect to improve ratios of inventory, payable days, and collection days.
One of the more important assumptions is that we can increase sales at a very high rate without corresponding increase in operating expenses. This is because of the leverage available in use of Internet technology as our main marketing and sales channel.
The break-even analysis is a good financial indicator. The following table and chart show break-even based on sales level per month and a high monthly fixed cost. Given those assumptions, we reach steady-state break-even by the end of this first year.
Despite the present trend towards investors encouraging losses for website businesses, we believe that we can turn a profit by the third year. We also intend to reduce losses significantly in the second year, as shown by the following table. Nevertheless, the investment in on-line and off-line advertising is substantial, and the traffic justifies the loss.
As is to be expected in this kind of venture, the cash flow is supported mainly by new capital from new investment in the company. We've scheduled additional rounds of financing to make that realistic.
The balance sheet shows our projected financial position during the next three years. Obviously the key variable during this period, overall valuation, isn't shown.
Our ratios, as projected here, are typical of the kind of growth company we project. The comparisons are based on NAICS code 454111, Electronic Shopping. We do expect our gross margin and sales per employee to be much higher than standard retail.
Details of the exit strategy are included in two following tables:
Equity Shares and Investment Return
|Round||Amount ($000)||Shares||Per share||Year||2003 Value||IRR %|
|Seed||$500K||1.5 million||$0.33||1999||$8.4 million||157 %|
|Round 1||$750K||750K||$1.00||2000||$4.2 million||138%|
|Round 2||$2 million||800K||$2.50||2001||$4.5 million||126%|