Video: Making financial ask – Example of AIM ClinicsCopy

Using AIMs Clinics as a case study,  Professor Hachikian shows how to effectively tell a compelling financial story and make a financial ask. 
Kindly leave your questions and comments in the comment session below. https://youtu.be/GLKJiRRg0U0

Transcript

So, now we’re going to get into developing a compelling story and financial ask and I think what I’m really going to do is show you a couple of examples, um, about compelling stories that I’ve, uh, seen and sort of hopefully that will help you think through what might work for your business. These are just two examples I think that, that kind of; are useful to um uh see some sort of themes about how you can do this. This is um, a bit more on this in clinics business “autism emotion” is what AM stands for. I’ll kind of walk you through how they pitched this business. What they started with, and I think every good investor presentation, uh, starts with the financial sections. This is like, this is not the whole presentation by the way, this is just a snapshot of the presentation; but usually the beginning of a good financial section in a pitch deck is actually going to outline how big your market is. I think that’s a really important part of sort of overall, you know, how you think about setting up this, um, the communication the target market.

Here, what they did was out these are three states in the US and the number of children with autism. So, essentially this is the whole market opportunity for this particular business; and then they went into that. This should look familiar because they went right into, you know, given that number of, you know, sort of the total number of children who could be their addressable market. What does that mean then about what that the sort of profitability of capturing a single child as part of that of their service? So, here you see the same slide right? This is client level economics per year, and again you’ve got revenue really clearly labeled; and the, like, the small writing underneath provides an insight into the assumptions so that you know where those numbers are coming from. That’s again really critical to show your investors that you know where these numbers come from. You didn’t just make them up. They’re actually really based on something you know, that, that’s tangible and that can be anchored on in terms of your either existing experience.

What you would analyze about the market, and then you know you got those costs and that marginal contribution rate. So, remember again this is one child on an annual basis. So, let’s look at what else they communicated; this isn’t the whole picture when it comes to their full financials; this is just the unit economic. Here, what we see is that that bloop that kind of teal color box 12664 comes right up into this slide where you see the annual contribution margin. Remember, that’s per year, they think that they will, that a child will stay with them for two and a half years; and again you can see underneath that recommended average treatment duration. So, that’s based on something tangible leads to client lifetime value of $31,695 against their uh model client acquisition cost of $432 leaving them with a very attractive ITV to CAC ratio.

An ITV to CAC ratio is the client lifetime value lifetime value of that being ITV to that cost of acquisition, and the cost of acquisition is calculated based on the number of clients that have come in in a particular period divided by the costs associated with acquiring all of those clients. So all, it isn’t necessarily how much I spend to acquire each individual client; like I spent thirty dollars to, you know, acquire Johnny, and fifty dollars to acquire David; the idea is you take all. The way you calculate is all the new clients are all the new sales depending on, you know, what your business is; divided by the total costs associated with all those sales in a given period that’ll give you your client acquisition, okay? So, this is so here, they’re so far.

This particular presentation is communicated to us client lifetime client level economics on an annual basis. It then helps us see what that lifetime value is, so that is annual times two and a half years based on the experience; and it helps us understand something about the acquisition cost per client. Now, we’re going to can move one level up. So, the way this business works actually that in any particular client relationship there are a number of um children who are each working with a behavioral technician who’s being overseen by a clinician. So, this is really describing an operating unit, and it especially, so there’s, there can be unit economics related to an individual purchase, and then there could be unit economics related to an operating unit. And so, you got to think a little bit about both this. This is particular to this type of business, but this is an important way to think about the different levels you might have to communicate. So, where this business works is um, there’s a sort of startup economics.

I’m not going to go into this too much, but basically, how much does it take to get a unit up and running? What is really is important is this slide, so here, we take that individual client level and we actually elevate it a little bit further to look at the operating unit. So, remember annual revenue per client we’re drawing right from those earlier slides; they even use color coding to really help us see how those numbers are coming over annual revenue per client; 30,800 and that contribution per client 12,664; those are numbers we’ve seen before. Here, we’re taking that x 12 because we know from this slide right here twelve children make up a unit, that’s important, so that that 12 is the 12 children that make up the unit 38,800 times is 465,600 contribution margin per client. That’s at 12,664 times 12 children leads us to a contribution margin per unit of 151,965.

We know we have some fixed overhead costs associated with that, but and what this shows us when you do the math and you put it all together is that our operating profit per unit per operating unit is 116 205. So, the important thing here is that what we can see is that this business has a lot of marginal contribution. That’s why we call it marginal contributions that contributes to the overall running of the business; the cost of the CEO; the cost of the ongoing run; the cost of them ahead of marketing; all those costs have to get covered somewhere and, if there are attractive unit economics to begin with then we know it’s likely once we have a lot of units up and running we’ll be able to cover that overhead cost. That’s what’s really important here that they do all of that explaining of all those years on this.

To cap it off here, is our hockey stick target just so that we can see it. Everyone has one, and the reason, you know, that you add this in at the end is it’s essentially saying okay when you add up all of those other costs and sources of revenue you do actually get to a place where you’re going to see profitability based on the revenue, and here you know costs are not even in here. This is the blue bars and the blue line. Again, they’re using that blue throughout to show revenue. The revenue shows you uh where they’re going to be in terms of the blue bars to show you where they’re going to be in terms of revenue, and then the green helps you see where the profitability is or Ebitda; which is, uh, you can use they’ve modeled Ebitda. You can model just straight up net income either way or that based on that they’re going to have 20 even emergence.

They have that hockey stick slide, but you can see from hearing me walk through this presentation that if you just had this you’d be like I don’t know where these numbers came from. Like okay, they tell me they’re profitable that’s great but why here we’ve walked through all the details of why they’re going to be profitable and then they put together the kind of the hockey stick, uh, chart at the end helped me see that in fact they understand why they’re going to be profitable. And, that when you add it all up, that they are going profitable to like as a whole business. Importantly, this is an impact business.

These kids are not just you know sources of revenue, this company has impact every time the company serves another kid has life-changing effects for that particular child who didn’t have access to autism therapy previously. As any good impact business would have they actually end the financial section of their business of their presentation talking about the total number of kids that they’ve served cumulatively over those five years. This really paints a picture um and much of the presentation prior to the start of the financial section talked about the impact of the business, and why this is really important business, and why it is having impact. So, here you see they cap out this this sort of financial picture with this idea around impact.

After the company goes through talking about the impact then in combination with the financials, and the impact then they want to ask for some funding, that’s the whole point of building a financial investor deck. So, they’re going to put that at the end today, we’re asking for, 200, um what then part of what they’re going to do is not just say we’re asking for this amount of money but they’re going to they’re going to link that with numbers they’ve already talked.

 Milestones are incredibly important. What is my money going to pay for essentially? What they’re going to do is they’re going to take that 200,000 then they’re going to build, they’re going to add, they’re going to open two new units which we saw from the slide. Each unit is a startup cost of 75,000 and so two of those are going to be 150, and then the other thing they’re going to do is invest in employee education that’s the master’s degree sponsorships. It’s kind of part of the impact of this business to help build their clinician pipeline. So, you can see how this whole thing from the beginning; talking about where the market is and how big the market is; through the unit economics, into the total cumulative business profitability; and then the ask and the impact it’s going to have together forms a nice cohesive story around how this company is going to make money