CROWDFUNDING & THE JOBS ACT:THE IMPACT ON STARTUP VALUATIONS

Efrat Kasznik, Founder & PresidentForesight Valuation Group, LLC

Emerging Enterprises CommitteeMonthly Webinar

July 7, 2014

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Outline

Startup Valuation Trends Factors Affecting Startup Valuations Startup Valuations and Crowdfunding

Rewards-Based Campaigns Equity-Based Fundraising

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What’s In a Billion Dollars?

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Key Performance Indicators (KPI): The New Valuation Fundamentals

KPI = Measurable Success Factors

User Engagement - active users # of Installs Customer Acquisition Cost (CAC) Customer Lifetime Value (LTV) Average Revenue Per User (ARPU) Customer Attrition (Churn Rate) Conversion Rate (funnel)

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High Startup Valuations in 2013

Raised $225M at $3.8B Valuation (Oct 2013)

$338M raised to date70M active users$0 Revenues

Raised $50M at ~$2B Valuation (Dec 2013)

$123M raised to date60M installs, 30M active users monthly16.5M users and 350M photos shared daily$0 Revenues

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Factors Contributing to High Valuations

More Exits

In 2013

User Engagement

High Growth Industri

es

More Fundin

g Options

• Angels• VCs• Private Equity• Crowdfunding

• 230 IPOs; $55B US• 10k M&As deals; $100B US• Active Secondary Market

• Healthcare• Internet of Things• Social Media

$3.2B Valuation

Nest Labs

• # Active Users• # Installs/Subscriptions• Conversion Rate• Churn Rate

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The Startup Valuation Timeline

Seed Fundin

g

Stock Option

s

Series A, B, C

M&AIPO

Available Information

Low High

Crowdfunding

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Reward v. Equity Based Crowdfunding:Valuation Considerations

Business Model Validation

REWARDS EQUITY

Creates Early Stage

Comparables

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Rewards Based Crowdfunding:Key Assumptions Validation

Customers

Production

FulfillmentProfit

Team

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Equity-Based Crowdfunding: Startups Valuations Revealed

• JOBS Act requires business plan and valuation

• Creates a set of comparable equity prices for investors & entrepreneurs

• May create issues for the pricing of stock options

• Competition with other funding options may drive stock prices up

Financial

Statements

Business Plan

Valuation

Public Financial Database

Seed Funding Valuations

409A Valuations

Employee Stock Options

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Seed/Angel Funding:Median/Mean Round Size

Source: Halo Report 2013

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Seed/Angel Funding:Pre-Money Valuation Range

Source: Halo Report 2013

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More Transparency Leads to Higher Prices?

Pre-2005 Post 409A (1/1/2005) Post JOBS Act (End of 2014?)

10%

25-30%

??

Ratio of Common Stock to Preferred Stock Prices

THANK YOU!

Efrat KasznikPresident, Foresight Valuation

Groupekasznik@foresightvaluation.com

Office: 650-561-3374

www.foresightvaluation.com