How to Increase Your Startup Valuation

LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 p1

Increase the Valuation of Your Startup #StartupValuation


Molly OtterChief Investment

OfficerLighter Capital

+10 years as a lender working as a generalist across all segments of the capital

structure.

Today’s Presenters

David EhrenbergChief Executive Officer Early Growth Financial

Services

+10 years experience in helping early-stage companies with accounting, finance, tax,

valuation services.

LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015

› Mission: make fundraising process more efficient utilizing technology and alternative structures

› Funded +70 tech companies: Most active revenue-based finance lender in the country

› $50K-$1M in growth capital

› Entrepreneur-aligned structure

About Lighter Capital

LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 4

“Startups face a huge burden in today’s economy, often having to choose between funneling resources toward creating their goods and services or managing the often complex accounting, tax and financial strategy planning necessary to run a successful business.”

~ David Ehrenberg, Founder and CEO Early Growth Financial Services


Today’s Agenda

Why is valuation important in startup land

Different types of valuation

The components that go into startup valuation

How to effectively demonstrate traction to investors

Examples of milestones that matter

p5


Why is valuation important for startups?

1. What % of equity can you give up in exchange

for cash?

2. How much can you extract from your company

in the long run?

3. How do you attract talent and investors?

4. Where do you stand in your industry?


Business valuation

409A valuation

Startup valuation

What does “valuation” mean?


Business valuations = company price

Calculations based on:

› Cash flows (current and projected)

› Value of physical and intangible assets

› Existence of readily identifiable potential strategic buyers

› Market sentiment


409A valuations = value of business’ common stock (utilized for issuing stock options)

› IRS requires Fair Market Value (FMV) analysis in conjunction with stock option grants

› If you are acquired by a public company, a Big Four accounting firm is likely to audit your approach to IRS compliance

› Reports are generally valid for 12 months – even if there’s been no financing activity, you’ll still need a new valuation annually

FM

V


What impacts a company’s 409A valuation?

› Company milestones

› IP› Industry’s

competitive dynamics

› Strategic partnerships

› Your investor base› Quality of

management team


Startup valuations = what someone is willing to pay


As measured by market growth rate

Opportunity size


Comparables

Based on recent financings or exits

Look for companies that are similar to you:

.

Stage

Progress

Size

Team Composition


Market sentiment

How hot the space is at any given moment

What the competition looks like


Team

› Who’s on the team

› Advisors? Board of Directors?

› Team members’ domain expertise

› Track record

› Reputation

› History of prior success


Traction› Growth numbers

› Measured as anything that shows that you are picking up speed…adoption of your product/offering


Demonstrating traction

Revenue User Adoption Traffic Churn Brand


Don’t’ forget about the cash burn!

› Burn is a very important ingredient in showing

traction

› Anyone can show traction if they have unlimited

funds!

› Be able to justify your burn with your growth rate

At Lighter Capital, we have a hard rule about lending companies with burn


How to create and hit your milestones

› Investors will want to know

“how?”

› Create budget and work

backwards to set milestones

› Show thought / accounting

behind your milestone

projections, e.g.

› In the past, when I’ve added a

sales headcount, I’ve been able

to get X more customers a

month. So if I hire X more, I can

expect a X% growth in

customers.


Growth milestones

› Examples:

› Reach breakeven in 6

months

› Acquire 3 new Fortune 500

company customers in Q2

› Release a product extension

by September 1, 2015

› Double revenue year-over-

year

Milestones should be

quantifiable and

associated with

a timeline.


When milestones backfire…

› Your past performance and projection don’t add up

› You don’t know your numbers

› You don’t have a plan to reach those milestones


› Every time you

raise should be

after you’ve

successfully

completed a

step function

› Know how

much you need

to raise to

reach the next

step


Q&A

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