9. Financial Projections & Economics
This section outlines Capital Delta's financial projections, revenue model, and economic framework across our development phases. Our approach balances sustainable growth with strategic investment in technology and talent to build a robust institutional-grade asset management business.
9.1 Revenue Model
Fee Structure Evolution
Our revenue model evolves through our development phases to align with industry standards while reflecting our value proposition:
| Phase | Management Fee | Performance Fee | Hurdle Rate | High Water Mark | Notes |
|---|---|---|---|---|---|
| Phase 0 | N/A | N/A | N/A | N/A | Proprietary trading only |
| Phase 1 | 1.0% | 20% | 0% | Yes | Friends & Family capital |
| Phase 2 | 1.5% | 20% | 0% | Yes | Early institutional capital |
| Phase 3 | 1.25% | 20% | 0% | Yes | Standard institutional terms |
| Phase 4 | 1.0% | 20% | 0% | Yes | Scale economics passed to investors |
Additional Revenue Streams
As we scale, we will develop complementary revenue streams:
- Separately Managed Accounts (SMAs): Custom fee arrangements for large institutional clients (Phase 3-4)
- Advisory Services: Risk management and derivatives consulting for institutional clients (Phase 3-4)
- Technology Licensing: Potential licensing of proprietary trading technology components (Phase 4)
9.2 Assets Under Management (AUM) Projections
AUM Growth Targets
| Year | Target AUM (End of Year) | YoY Growth | Key Growth Drivers |
|---|
| 2025 | $500K | N/A | Initial proprietary capital | | 2026 | $2M | 300% | Friends & Family capital, early track record | | 2027 | $10M | 400% | First institutional investors, regulatory approval | | 2028 | $25M | 150% | Expanded institutional base, enhanced track record | | 2029 | $40M | 60% | Broader market recognition, operational maturity | | 2030 | $60M | 50% | Institutional allocator relationships, expanded strategy suite | | 2031 | $100M | 67% | Global expansion, multiple product offerings |
9.3 Expense Projections
Cost Structure by Category
Expense Evolution by Phase
| Expense Category | Phase 0-1 | Phase 2 | Phase 3 | Phase 4 |
|---|---|---|---|---|
| Personnel | 2-3 team members<br>$200-400K | 4-6 team members<br>$400-800K | 8-12 team members<br>$800K-1.5M | 15-20 team members<br>$1.5-3M |
| Technology | Cloud infrastructure<br>$50-100K | Hybrid infrastructure<br>$100-250K | Advanced infrastructure<br>$250-500K | Enterprise infrastructure<br>$500K-1M |
| Legal & Compliance | Basic legal structure<br>$50-100K | Regulatory setup<br>$100-200K | Full compliance program<br>$200-400K | Global compliance<br>$400-800K |
| Office & Admin | Virtual/shared space<br>$25-50K | Dedicated office<br>$50-100K | Multiple locations<br>$100-200K | Global presence<br>$200-400K |
| Marketing & BD | Minimal<br>$10-25K | Targeted outreach<br>$25-50K | Institutional marketing<br>$50-100K | Global brand building<br>$100-200K |
| Research & Data | Basic data feeds<br>$25-50K | Enhanced data<br>$50-100K | Premium data services<br>$100-200K | Comprehensive data<br>$200-400K |
9.4 Profitability Analysis
Projected P&L Metrics
| Metric | Phase 1 | Phase 2 | Phase 3 | Phase 4 |
|---|---|---|---|---|
| Revenue | $30-60K | $150-500K | $500K-1.5M | $1.5-3M+ |
| Expenses | $360-725K | $725K-1.5M | $1.5-2.9M | $2.9-5.8M |
| EBITDA | -$330K to -$665K | -$575K to -$1M | -$1M to +$0 | +$0 to +$1.5M |
| EBITDA Margin | Negative | -100% to -50% | -20% to 0% | 0% to 30% |
| Breakeven AUM | N/A | N/A | ~$40-50M | Achieved |
Key Financial Milestones
- Initial Investment Recovery: Expected by end of Phase 3 (cumulative)
- Monthly Cash Flow Breakeven: Late-Phase 3 (~$40M AUM)
- Annual Profitability: Early Phase 4 (~$50-60M AUM)
- Target Steady-State Margins: 20-30% EBITDA margins in Phase 4
9.5 Capital Requirements
Funding Rounds
Use of Funds by Round
| Funding Round | Amount | Primary Use of Funds | Timing |
|---|---|---|---|
| Seed | $250-500K | Initial technology development, legal structure | Phase 0 (2025) |
| Series A | $500K-1M | Team expansion, regulatory approvals, initial AUM | Phase 1 (2026) |
| Series B | $1-3M | Institutional infrastructure, global expansion | Phase 2-3 (2027-28) |
| Growth (Optional) | $3-5M | Accelerated scaling, strategic acquisitions | Phase 3-4 (2029+) |
9.6 Valuation Framework
Valuation Metrics
Capital Delta's valuation will be based on industry-standard metrics for asset managers, with adjustments for our technology-driven approach:
| Phase | Primary Valuation Method | Expected Multiple Range | Key Value Drivers |
|---|---|---|---|
| Phase 0-1 | Multiple of invested capital | 1-2x | Team, technology, strategy |
| Phase 2 | Multiple of revenue | 3-5x revenue | AUM growth, regulatory approval |
| Phase 3 | Multiple of revenue/EBITDA | 5-8x revenue | Track record, institutional clients |
| Phase 4 | Multiple of EBITDA | 8-12x EBITDA | Scale, profitability, growth rate |
Comparable Companies
Our valuation framework is informed by comparable public and private companies:
- Traditional Asset Managers: 8-15x EBITDA
- Alternative Asset Managers: 10-20x EBITDA
- FinTech Companies: 5-15x revenue
- Quantitative Trading Firms: 5-10x revenue or 10-15x EBITDA
9.7 Exit Strategies
While our primary focus is building a sustainable, independent asset management business, we recognize the importance of providing liquidity options for early investors:
| Exit Option | Likely Timing | Potential Acquirers/Partners | Valuation Range |
|---|---|---|---|
| Strategic Acquisition | Phase 3-4 | Traditional asset managers, banks, financial institutions | 10-15x EBITDA |
| Private Equity Investment | Phase 3 | Financial sponsors, private equity firms | 8-12x EBITDA |
| Management Buyout | Phase 4 | Internal team | 6-10x EBITDA |
| IPO | Phase 4+ | Public markets | 12-18x EBITDA |
| Remain Independent | Ongoing | N/A | N/A |
9.8 Risk Factors and Sensitivity Analysis
Key Financial Risks
| Risk Category | Potential Impact | Mitigation Strategy |
|---|---|---|
| Market Downturn | Reduced performance fees, slower AUM growth | Diversified strategies, downside protection focus |
| Regulatory Changes | Increased compliance costs, business model adjustments | Proactive compliance, regulatory relationships |
| Fee Compression | Reduced revenue per AUM | Technology efficiency, value-added services |
| Talent Acquisition/Retention | Higher personnel costs, potential strategy disruption | Competitive compensation, equity participation |
| Technology Costs | Higher than projected infrastructure expenses | Cloud optimization, phased deployment |
Sensitivity Analysis
The following table shows how our EBITDA projections vary based on different AUM levels:
| AUM Level | Projected EBITDA |
|---|---|
| $10M | -$0.5M |
| $25M | $0M (Breakeven) |
| $40M | $0.5M |
| $60M | $1.0M |
| $80M | $1.5M |
| $100M | $2.0M |
This financial framework provides a roadmap for Capital Delta's economic development from proprietary trading through institutional scale. Our projections balance ambitious growth targets with realistic capital requirements and a clear path to profitability, creating a sustainable business model that can deliver value to investors, clients, and stakeholders.