Post on 01-Nov-2014
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SME Clinic Series
Show Me The Money!
Jong Lee
Feburary 5, 2013
Hong Kong1
JLL Entrepreneur Series, Jong Lee 2
Thank You
For Coming!
JLL Entrepreneur Series, Jong Lee 3
Happy Hour
until 8PM!
• Founder & Managing Director of RGL Holdings, Ltd.
– Private Equity, Venture Capital, Turnarounds & Advisory
– Current focus on cross border tech, startups & SMEs, special
purpose real estate, social enterprise and education
– Active in Asia, N. America and Europe
• My Former Lives:
– H&Q Asia Pacific – Oldest Pacific Rim PE / VC Firm
– UBS – Technology Investment Banking
– Simpson Thacher & Bartlett – LBOs for KKR & Blackstone
• Lived and Worked in Hong Kong, Tokyo, Beijing,
Seoul, Los Angeles, Silicon Valley, New York, etc….
• J.D. Columbia University (yes, I’m a lawyer…)
• BAS (Bioengineering) & BA (Political Science).
University of Pennsylvania
Jong Lee
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Selected Deal Sheet
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Community Involvement
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Let’s Talk About
Money…
Different Kinds of [Money]
• Upfront Cash (YES!)
• Staged Cash
• Lines of Credit
• Guarantees
• In Kind
• Liquid Assets
• Resources
• What else?
• Equity
• Debt
• Convertible
• NREs
• Personal
• F&F
• Angel
• VC / PE
• Real Revenues!
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What are you
doing?
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Why is it Worth
Something?
What is of Value?
• The People
– You
– Your Team
• Customers
• Relationships
• Product
• Intellectual Property
– Technology
– Other IP
• Your Head Start
• Your Cash / Revs
• Your synergy with
someone or
something else
• Competition
• Location
• Regulation
• What else?
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What is of Value
May Depend a Lot
on Who is Looking
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Unfortunately, No
Matter What, A Lot
of Value Depends on
Timing and Supply
and Demand for
What You Have
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Ok Let’s Talk VC
Valuations
Assumptions
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• We are talking equity or convertible debt
• Your business is scalable and has
potential exit value as an IPO or M&A
within 3 – 5 years
• Let’s pretend we are in Sand Hill Road
• Let’s assume your company will
eventually have revenues and
profitability or a lot of users (something
we can readily measure)
Some Non Financial Ways VCs
Can Value Your SME• How much is your
team worth to
someone else (e.g.
Google, Apple, etc..)?
– Today? Next Year?
• How much is your IP
worth to someone
else?
– Today? Tomorrow?
• How Much are your
customers or
products worth to
someone else?
– Today? Tomorrow?
• How Much would it be
worth to someone to
take you out of the
market?
– Today? Tomorrow?
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Rule of Thumb / Shotgun Approaches
• “Standard Deals”
– E.g. one size fits all
convertible debt deals
for successful
graduates of some
incubators
– E.g. “standard terms”
for some more
established angel
groups (valuation
ranges based on
company stage)
• Local “Market” Deals
– “Angels deals Palo
Alto are typically $X
for y% of the company
in common shares”
– Same but convertible
debt at a discount to
next round with max
– Series A means…
– Series B means…
– Series C means…
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Financial Valuations
• Metrics Used:
– Your current and
future revenues
– Your current and
future profits
– Your current and
future user base
– Your current and
future asset base
– Your current and
future human base
• How Metrics are Used
– Revenue ratios
– Earnings ratios
– DCF
– $ per customer
– $ per engineer
– Enterprise Value
– PEG ratios
– What else???
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Financial Valuations
• Revenue ratios
– Price per share vs
Revenues (FTM/TTM)
• Earnings ratios
– Price per share vs
Earnings (FTM/TTM)
• DCF
– Discounted Cashflows
– Net present value
exercise
• $ per customer
– Is there a range in
value $ per customer
• $ per engineer
– How much is each
engineer worth?
• Enterprise Value
– Equity – debt - cash
• PEG ratios
– Price earnings growth
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VC Valuations are
often different from
strategic, angel or
F&F methods
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It’s often about
COMPS COMPS
COMPS!
Comparables
• VCs (along with pretty much everyone
else) can only really value you based on
how you compare to your peers (present
or future)
• Who are your peers?
• What metrics can we use to compare?
• What timelines are we talking about?
• Which market are you talking about?
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Comparables
• VCs rely heavily on recent comparable
transactions (especially for M&A)
• VCs rely heavily on relevant (not
necessarily just recent) public market
comparables to your company
• Different markets, countries, companies
matter a whole lot
• More art than science!!!
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Example IPO Exit
Valuation Exercise
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So Why Does Any
Of This Matter to
SMEs in Hong
Kong?
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Great Question
Valuations Always Matter
• Aren’t we always hearing questions about
when VCs will start investing in HK?
• Valuations = Equity and Share
• Equity is expensive
• Fundamentals and the need to understand
comparables always matter
• Understanding how quickly supply and
demand for what you are, offer or have is
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Open Q&A Clinic
Future Clinics
• Bootstrapping HK Style
• Term Sheets
• NDAs
• Stock Options
• Shareholder & Investment Agreements
• SME Loans, Grants and Programs
• SME Tech Toolkit
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Please Fill Out the
SCC Questionaire!
31
Questions?
Thank You
jong@rglcompanies.com
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