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Introduction

Understanding financial projections, raising capital, and navigating venture capital deals are

crucial skills for entrepreneurs in the innovative and fast$-$paced startup ecosystem. Financial

projections not only guide the strategic direction of a startup but also serve as a critical tool in

communicating the venture's potential to investors. Raising capital is a pivotal moment in a

startup's journey, requiring a deep understanding of valuation, equity, and investment terms.

Mastery of these areas is essential for securing the right partnership with investors while ensuring

the long$-$term growth and sustainability of the business.

Part $1(50)$: Financial Projections for a Tech$-$Enabled Home Fitness

Company

Business Scenario:

$$ You are tasked with developing a detailed financial plan for a tech$-$enabled home fitness

company that combines smart exercise equipment with a subscription$-$based online

platform offering live and on$-$demand workout classes.

Assignment Requirements:

$$ Five$-$Year Financial Forecast: Create detailed monthly projections for the first year and

annual projections for the subsequent four years, focusing on Profit & Loss statement.

$$ Assumptions and Rationale: Clearly articulate the assumptions made regarding market

size, sales volumes, pricing strategies, and operating costs. Provide a rationale for these

assumptions based on market research or industry benchmarks.

$$ Financial Details: Include estimations for equipment unit sales, subscription user growth,

pricing strategies, cost of goods sold $($COGS$),$ and detailed operating expenses.

Submission:

$$ An Excel file with comprehensive financial models.

$$ A written report $($maximum FOUR pages$)$ detailing your assumptions, methodology, and a

summary of the financial outlook.

Part $2(50)$ : Simplified Venture Capital Deal Structuring

Objective: Using the financial projections from Part $1,$ simulate a Series A venture capital funding

round, focusing on pre$-$money valuation, option pool sizing, and deal structuring.

Instructions:

$1.$ Pre$-$Money Valuation:

$$ Utilize the projected year$-$five EBIT $($ignore depreciation and amortization$)$ and

apply an industry$-$standard multiple to estimate the company's pre$-$money

valuation. $2.$ Option Pool Sizing:

$$ Determine the percentage of the company to be allocated for future employee

stock options. Choose a percentage that reflects your company$$s needs to recruit

and incentivize key employees. Calculate its impact on the total share structure if

your company currently has $1$ million shares outstanding.

$3.$ Deal Structuring:

$$ Outline the amount of capital to be raised, calculate the post$-$money valuation, and

determine the new investors$$ equity percentage, factoring in the option pool's

dilutive effect.

Submission:

$$ A detailed report $($maximum THREE pages$)$ explaining your valuation methodology, option

pool sizing, and the structured deal, including investment amount and resulting equity

distribution.

$**$Bonus $(10)$: Alternative Funding Sources$**$

At this stage, beyond venture capital, explore other funding sources that could be suitable for the

startup, considering the business model and financial projections.

Identify Alternative Sources: List potential funding sources other than venture capital.

Justification: Provide a solid rationale for each selected funding source, linking your choices to the

specific circumstances of the business scenario and the assumptions made in the previous

sections.

Strategic Fit: Explain how these funding options align with the company$$s short$-$term and long$-$term

goals, based on your financial projections and potential needs for next rounds of financing.

Submission:

A concise written explanation $(1-2$ pages$)$ as part of your main report, detailing the alternative

funding sources and your rationale for choosing them.

Submission Guidelines:

$$ The assignment should be clear, well$-$justified, and demonstrate a thorough understanding

of startup finance fundamentals and venture capital deals.

$$ Submit the complete assignment through the designated Dropbox on D$2$L before the

deadline. Ensure all parts are cohesively integrated and presented in a professional format.

$$ Please combine all documents into a single PDF $($except Excel file$).$

$$ This is a group assignment.

$$ No Late submissions will be accepted. Notes:

$-$ Do NOT make holistic assumptions about final numbers. E$.$g$.,$I assume our first$-$year

salary would be X$.$ Instead, try to come up with a systematic prediction.

$-$ Feel free to add$/$delete subcategories in the excel template. Depending on your

assumptions, you might move some items from COGS to Operating Expenses or reverse.

Please note that the excel sheet is only a template to start with and you may need to

delete$/$add fields based on your needs.

$-$ APA citation is required.

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