Ideas To Deals Valuation

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1 Ideas to Deals Live Valuation: What’s it all Worth?

description

Slides on the basics of setting valuation for an early stage company.

Transcript of Ideas To Deals Valuation

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Ideas to Deals LiveValuation: What’s it all Worth?

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• Valuation of early-stage companies is a little short of random.

• Valuation is negotiated, there are no hard numbers especially for early-stage companies.

• Provide a good projection of future value at a potential, future liquidity date and discount back.

• Know comparables…What other companies, similar to yours, have generated what multiples of sales at liquidity.

• Build value as you build the company ~ Focus on “Value Inflection Points”.

• Focus on dollars not percentage– 10% of a $20 million company is worth more than 100%

of a $1 million company.

Key Valuation Issues

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Suggestions for CEO’s

• Know what investors look for and expect.• Make sure you and the investors are on the same

page. Good investors will want you to have a fair percentage of the company.

• Know why these things are important to investors.• Understand the factors that influence value• Anticipate investor questions.• Look at competitive deals.• Learn from the process ~ Listen well

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Cap Table ExamplePre Investment

Unit Holders Issued Valuation Pre-investment Post-investment

John Doe 500k $500k 25% 19%Bill Smith 400k $400k 20% 15%Jane Brown 800k $800k 40% 31%

ESO Pool 300k $300k 15% 15% Note…ESO does not dilute Total Issued $2 mil $2 mil 100% 80%

Post Investment

Investors 500k $500k 0% 20%

Total Issued $2.5 mil $2.5 mil 25% 100%

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“Cram Down” ExamplePre Investment

Unit Holders Issued Valuation Pre-investment Post-investmentJohn Doe 481,250 $240,625 19% 11.5%Bill Smith 381,250 $190,625 15% 9.5%Jane Brown 781,520 $390,625 31% 19%ESO Pool 375,000 $187,500 15% 15%Investors 481,250 $240,625 20% 11.5%

Total Issued $2.5 mil $1,250,000 100% 62.5%

Post Investment

Investors Rd 2 1,500,000 $1,250,000 0% 37.5%

Total Issued $4 mil $2.5 mil 100%$750,000 raised at $.50 per share; decrease in valuation of 50%