How to valuate your company, with Capricorn Venture Partners (Finance for Startups- part 2)
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Transcript of How to valuate your company, with Capricorn Venture Partners (Finance for Startups- part 2)
Capricorn Venture Partners How to value your company?
Finance for Start-Ups May 28, 2013
CAPRICORN VENTURE PARTNERS
In short
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Partners-owned
20 people organisation, 20 years existence
Licensed asset manager – AIFMD compliant
Over € 250 million under management
Capricorn Venture Partners
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ICT
€ 15 million
CLEANTECH
€ 112 million
Quest for Growth
€ 106.8 million** December 31, 2012
Quest Cleantech Fund
€ 11.0 million** December 31 , 2012
HEALTHTECH
€ 42 million
Head office, Leuven, Belgium
DISCLAIMER
The views expressed in this presentation do not necessarily reflect the views of the Capricorn Venture Partners or its investment managers.
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HOW TO VALUE YOUR COMPANY?
Capricorn Venture Partners
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Venture capital reality
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Most capital get raised to address specific operational needs before
significant value has been created. In those instances the strategic
interest of new and existing investors to obtain or maintain a certain
percentage interest in the company prevails over the valuation models.
In most cases traditional valuation models become only relevant at
exit.
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Conventional Valuation Techniques
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• Discounted cash flow
• Price / earnings ratio
• Price / EBITDA ratio
• Price / sales ratio
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Issue
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Cash flow, earnings, EBITDA, sales, … ?????
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Alternative Valuation Techniques
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• Peer comparison
• Technology value
• Pre-money versus post-money
• 1/3 sweat - 1/3 IP – 1/3 €’s
• Your value is 1 to 2 times the money you can raise
• The price a fool is prepared to pay
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Who is afraid of dilution?
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What do you prefer?
Pre-money versus post-money
• Always differentiate between pre-money and post-money
• pre-money = value of the company before the transaction
• post-money = value of the company after the transaction
• post-money = pre-money + capital increase
• post-money = invested amount / percentage in the company
• post-money = total number of shares after the transaction x price per share
• Always differentiate between actual and fully diluted shareholding
• fully diluted = including all shares resulting from conversion, stock options, warrants, or any other rights related to securities of the company
• Use price per share and total number of shares fully diluted as the
legally binding values
• Keep it simple
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A simple cap table example
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price per share investment shares seed series A series B series C series C + SOP
€ € #
founders 100.000 1.000.000 80% 44% 28% 22% 20%
seed investor 1 250.000 250.000 20% 11% 7% 5% 5%
Series A investors 2 2.000.000 1.000.000 44% 28% 22% 20%
Series B investors 3 4.000.000 1.333.333 37% 29% 26%
Series C investors 4 4.000.000 1.000.000 22% 20%
stock option plan 509.259 10%
pre money 1.000.000 2.500.000 6.750.000 14.333.333
post money 1.250.000 4.500.000 10.750.000 18.333.333 20.370.370
total 10.350.000 5.092.593
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A simple cap table example - exit
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price per share investment shares series C + SOP exit multiple
€ € # €
founders 100.000 1.000.000 20% 15.709.091 157
seed investor 1 250.000 250.000 5% 3.927.273 15,7
Series A investors 2 2.000.000 1.000.000 20% 15.709.091 7,9
Series B investors 3 4.000.000 1.333.333 26% 20.945.455 5,2
Series C investors 4 4.000.000 1.000.000 20% 15.709.091 3,9
stock option plan 509.259 10% 8.000.000
pre money
post money 20.370.370 80.000.000
total 10.350.000 5.092.593 7,7
exit value 80.000.000
stock-options 10%
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DEMONSTRATE NON-FINANCIAL VALUE CREATION
Capricorn Venture Partners
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Measuring non-financial value
• Separate KPIs/VIPs for the current year and towards exit
• 2013 points should reflect management KPI’s and our priorities
• By preference “measurable” or “achieved yes/no” points
• Not every cell needs to be filled
• Colour coded
• Blue : status at start of year/neutral/work in progress
• Green : realised
• Orange : critical but solution identified
• Red : critical no solution identified
• Italic : changed versus previous quarter
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THE PITFALLS FOR START-UPS
Capricorn Venture Partners
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5 reasons why you will fail
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1. Don’t underestimate the time to market
4. It is not easy to convince a million consumers
5. In love and in business you have to let go sometimes
3. Big data is not a free for all
2. Beware of “It’s kind of a …”
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2 reasons why you will be succesful
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Team IP strategy
Team
• Get business & entrepreneurial experience in the team
• Do not force researchers in a CEO role
• Build multidisciplinary teams (not all engineers!)
• International exposure and language skills
• Humans are not scalable
• Hiring new key persons that you have to pay more as the founders?
• No function in a start-up company is forever
• Keep you friends as friends
• Foresee “good leaver – bad leaver” conditions in shareholders
agreement and stock option plans
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IP strategy
• Define and challenge your IP strategy!
• Protection or freedom to operate?
• Does a patent has value without the associated business?
• Is a licence model a valid business model?
• Are you prepared for a patent due diligence by a US law firm in view
of a $ xxx million acquisition?
• Any change of control clauses in your contracts with customers,
suppliers, license agreements
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IP strategy is more than patents
• Trademarks
• Website
• Trade Secrets
• Contractual IP
• Employment and assignment of invention agreements
• Consultancy contracts
• Contracts with suppliers and customers
• License agreements
• Your network
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Importance of patents
• Patents are important in any phase of a VC investment !
• As an information source for deal selection
• Before making an investmento Strong and clean IP
o Full ownership of patent(s) by the company remains the preferred model!
o Exclusive license with transfer rights and right/obligation to defend source IP?
o FTO - Freedom to operate is key
• During the investment period
• At exit (most likely via M&A transaction)
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THE PITCH
Capricorn Venture Partners
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Pitching is a lot like dating
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1. Don’t order the most expensive thing on the menu
4. Have realistic expectations
5. Learn how to deal with disappointments
3. Be aware that you will be stuck with eachother for a while
2. Be yourself
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For further inquiries
Contact:
Tom Vanhoutte ([email protected])
Capricorn Venture Partners
Lei 19/1, B-3000 Leuven, Belgium
Tel +32 16 284100 Fax +32 16 284108
http://www.capricorn.be
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