1. Capital Structure
We are generally of the opinion that all startups should not try to burden their balance sheet by taking on debt. A startup, in its phase of non-self-sustainability, has no access to traditional lenders. Lenders must not take a high level of risk and are unable to make any use of guarantees such as a portfolio of patents, or a lab equipment too much geared toward a unique purpose. Alternative -costly- lenders have been luring startups for at least two decades. We postulate that it is not a good option. It also gives a bad signal to potential investors, showing desperation to keep the lights on.
Almost as a religion, entrepreneurs, as long as their business does not generate a positive operating cash flow on a recurring basis, have recourse to any combination of the three basic options, 1. maximizing revenue with the existing resources, 2. reducing expenses to the core minimum, and/or 3. funding any anticipated gap between resources and expenses with equity or quasi equity.
J&M Lab helps entrepreneurs identify investors and point to those who would most likely appreciate being acquainted with the investment opportunity. J&M Lab is not an investment bank. We do not broker introductions between startup leaders and investors. Our contribution centers on:
- Assisting in drafting business plans, presentation pitches and communications.
- Analyzing term sheets and advising on their value for the company’s future.
- Providing a rationale for the valuation of the business.
For startups with a recurrent positive cash flow, that seek to borrow money, we assist in evaluating the real cost, and assessing competitive offers.
2. Modelization
Building financial projections in startups present challenges that most technology entrepreneurs are not equipped to solve properly. Through a long series of questions to founders and CEOs, addressing issue after issue we progressively craft a full model, that is the financial representation of the business plan. We consider it is the best task to understand the drivers of a business. As formal as it looks, it is full of relevant information. This is the essential platform to drive a scenario analysis. Under a set of assumptions, the model gives an image of what would occur and how money can be made. It is a terrific decision tool, but not a crystal ball.
3. Corporate Finance
We offer a hands-on assistance as a CFO on-the-fly, drafting dashboards with the essential metrics, analyzing the main elements of financial statements, outlining the apparent anomalies and suggesting alternative options to correct them.
4. Valuation
Valuing technology businesses with negative operating cash flow and a fast growth path requires an analysis where modern and traditional tools used by conventional valuation specialists are of no use. We praise ourselves as a firm that assesses intangibles with alternate methods, develops a normative approach to estimate the firm’s profitability at a certain horizon, and ponders the result with a risk factor based on a few variables. Depending upon the purpose of the valuation, such as raising funds, selling the business, partnering with another business in a 50-50 JV, the outcome in each case will be different, as there is no such thing as an intrinsic value. A Valuation report is an aid to negotiations leading to a tangible transaction.