This presentation takes a look at the key considerations for valuing a startup especially within the context of the Lagos Angel Network. It covers Physical Assets, Intellectual Property, the People, Customers & Contracts, Discounted Cash Flow (DCF), Earnings Multiple, Asset Replacement Cost, Market Size & Growth, Competitors & Barriers and Comparable Recipients.

1. Startup Valuation Guidelines
Lagos Angel Network (LAN)
Start-Up Resource Centre

2. LAN Investment Profile
Lagos-based Startup:
• Legal entity in growth industry sector
• 1+ round of Founder, Family & Friends
(FFF) funding
• 1+ year of founding team time invested
• less than 2 years of customer service
operations
Requires: N5-N25M for growth
Valuation Objective:
• Pre-Money Valuation
• Post-Money Ownership Percentages

3. Valuation Components
1. Physical Assets
2. Intellectual Property
3. The People
4. Customers & Contracts
5. Discounted Cash Flow (DCF)
6. Earnings Multiple
7. Asset Replacement Cost
8. Market Size & Growth
9. Competitors & Barriers
10.Comparable Recipients

4. Physical Assets
• What is the fair market
value for all the start-up's
physical assets?
• The asset approach is the
most concrete valuation
element. Although most
startups normally have
fewer physical assets it is
still worth counting
everything they have.

5. Intellectual Property
• Has real value been
assigned to the start-up’s
intellectual property?
• Trademarks, Patents and
Designs that gives the
startup market advantage
which can justify an
increase in valuation
should be registered.

6. The People
• What is the value of all
the principals and
employees in the
startup?
• Value should be assigned
to all paid professionals, as
their skills, training, and
knowledge of the business
operations and technology
are valuable.

7. Customers & Contracts
• Have each customer and
contract the start-up has
going been valued?
• Every customer contract
and relationship even ones
still in negotiation should
be monetised. Recurring
revenues like subscriptions
are particularly valuable.

8. Discounted Cash Flow (DCF)
• Has Discounted Cash
Flow (DCF) for the start-
up’s revenue projections
been calculated?
• The time value of cash
from the start-up's income
can be used for valuing the
start-up. The discount rate
will vary from 30% to 60%
depending on
circumstances.

9. Earnings Multiple (NB post-revenue startups only!)
• Have multiples of the
start-up’s earnings
before interest, taxes,
depreciation and
amortization (EBITDA)
been evaluated ?
• A target multiple taken
from industry average or
derived from scoring key
factors of the business can
be used.

10. Asset Replacement Cost
• Has what it would cost to
replace the start-up’s key
assets been calculated ?
• The cost approach can be
used to measure the net
value of the start-up today
by calculating how much it
could cost for a new owner
to replace its key assets.

11. Market Size & Growth
• Has the size of the start-
up’s market, and the
growth projections for its
sector been assessed ?
• The bigger the market and
the higher the growth
projections are from
analysts, the more the
startup is worth.

12. Competitors & Barriers
• Have the number of
direct competitors the
start-up has and the
barriers to entry been
assessed ?
• Competitive market forces
such as “first mover”
advantage, premium
management team, few
competitors, high barriers
to entry, etc. can have a
large impact on what
valuation the start-up has.

13. Comparable Recipients
• Are there similar
companies available that
have recently received
funding to compare the
start-up with?
• This market approach is
like in real estate where a
property is valued for sale
by comparing it to similar
properties recently sold in
its area.

14. Finally
• Remember that all the components, except the comparative
funding recipients, are cumulative.
• Even if an you exclude some of the components from
consideration in any case, credibility should be bolstered by
the fact that the start-up understand an angels interests as
well as theirs.
• In any case, the analysis will prepare you for the term sheet
negotiations to follow.
• Precision is not the issue here as no Angel investor should
spend more than five minutes arguing the fine points of the
last valuation naira.

15. QUESTIONS?
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THANK YOU!
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