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This presentation on Valuation of Early Stage Companies was Presented at Maple Leaf Angels Lunch and Learn Series. The Shamrock method of Valuation created by the Author was introduced at this presentation.
Citation preview
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LUNCH AND LEARN:VALUATION OF EARLY STAGE COMPANIESPresented by: Gerard Buckley, Jaguar Capital
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Who Am I
• Founder and CEO of Jaguar Capital an Advisory Practice for Growth Stage Companies
• Chairperson of BOD, Maple Leaf Angels• Entrepreneur in Residence with Incubes• Member of SME Committee of OSC• Investment Comm of MSV University, Hfx• 32 yr. Career with Scotia Capital as a
Financial Risk Management Advisor to Fortune 200 Companies: Rogers, Irving Gr, Empire Co., Four Seasons, Bruce Power, Ford, CAE etc.
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Valuation - Agreement of Price to Buy & Sell
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Valuation - Introduction
• The Valuation of a company is the price to buy the entire company whether it is public or private. It is usually quoted in the price of a share; however, for a private company you need to know the total value usually stated as Pre-Money Valuation before investment and Post-Money Valuation or Market Capitalization after investment.
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FMV – Fair Market Value
``the price , expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arms length in a open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts.``
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Valuation – Revenue Companies
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Valuation Methods – Revenue Companies
1. Multiple of EBITDA2. Discounted Cash Flow3. Comparable transaction method4. Book Value 5. Total Enterprise Value6. Market Value7. Liquidation Value: Forced or Orderly
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Valuation – Business Valuations
• Every valuation and Pricing is unique• In a M&A Transaction price or valuation
comes down to the strategic value the acquirer brings to the transaction & the portion paid to the target
• 65% of business owners don’t know what their company is worth
• 85% have no exit strategy• 75% of their worth is tied up in their
business
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Valuation – Business Valuations
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Valuation – Pre - Commercialization
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Valuation – Pre - Commercialization
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Valuation – Investor Expectations• Google, the most active M&A buyer paid
< 20 mil with <20 people for 90 % of it`s targets.
• An Angel Investor has an expectation of 10X
• Survey conducted among USA angel groups by Bill Payne in 2012. Average Pre-Money valuation is 2.96m & Median is 2.75m an increase over`11
• The usual range of valuation for an pre-commercialized company 1 to 3 mil
• A Convertible Debenture (last weeks lunch and learn) is a way to take the valuation discussion off the table
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Valuation – How subjective is it?
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Valuation – Investor Expectations
• At the end of the day valuations are subjective
• Many VC`s will not discuss investment until a price is set
• A high valuation may create an orphaned financing or even worse a future down round
• Businesses are sold not bought, a business should be preparing for an exit from the start
• A company needs to understand the potential buyers universe (Financial vs. Strategic buyers) and what they are looking for.
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Valuation – Investor Expectations
• A USA with concerning terms will have negative pressure on valuation
• Valuation is calculated on a Fully Diluted Basis – all options, warrants, convertible debentures, vesting, etc. are converted for the purposes of presenting the `Capitalization Table` referred to as `Cap Table`
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Valuation – Investor Expectations
• Valuation is caveat emptor – buyer beware. More investors have lost more money because they overpaid for a stock than has been lost due to fraud. (Warren Buffett and Benjamin Graham = Value Investing)
• Concentrated sales is negative for valuation
• Bootstrapping and obtaining traction will assist a company build valuation
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Valuation Methods - Pre- Commercialization
1. Venture Capital Method (ARI)2. Scorecard Method (David Berkus)3. Risk Factor Method (ARI)4. The Shamrock Method (Buckley)
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Valuation Methods – Venture Capital Method
2.3mil Pre Money Valuation = Post Money Valuation - Investment
Post – Money Valuation – Valuation at InvestmentTerminal Value – Valuation at Exit (is estimated)ROI – Cash on HandAssume no dilution
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Valuation Methods – Scorecard Method
30% Management - quality team in place, except
sales
25% Opportunity - appears to be a huge
opportunity
15% Product – disruptive technology, prototype
done
10% Sales – team not in place , channels unclear
10% Competition – many small players, lack
technology
10% Other Factors – foreign Market, partners
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• Management
• Stage of the business
• Legislation/Political
risk
• Manufacturing risk
• Sales and marketing
risk
• Funding/capital
raising risk
• Competition risk
• Technology risk
• Litigation risk
• International risk
• Reputation risk
• Potential lucrative exit
Valuation Methods – Risk Factor Method
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Valuation Methods – Shamrock Method
• Credit for Actual Invested Capital (no sweat equity)
• Up to 250K for Management Team• Up to 250K for Proof of Concept or Product
Validation• Up to 250K for Disruptiveness of Technology &
Patents• Up to 250K for Business Model, pricing, etc.• Up to 250K for other including advisors,
governance, financials, company infrastructure, etc.
• Up to 250k for go to market strategy, traction, growth…
• Credit for 2 years of revenue run rate up to 3 years
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Contact Information
Gerard Buckley, BBA, FICB, ICD.DPresident and CEO Jaguar Capital Inc.(C) 416-884-9522(W) 416-646-6789
www.jaguarcapital.ca
Twitter: @jaguarcapital Twitter: @gerardbuckley