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)

1. S
“ Valuation of Pre-
Commercialized Companies”
Experience.
Governance - Financial Management - Strategy
Integrity. Trust.

2. 2
Real World
Gerard Buckley
Experience and Expertise
S Founder & CEO of Jaguar Capital an Advisory Practice for
Growth Companies in Governance, Financial Management
& Strategy
S Past - Chairperson of Board of Directors, Maple Leaf Angels
Corporation & founder and Lead Director for Maple Leaf
Angels Capital Corporation, the General Partner of
MLA48LP1 a Pre-Seed Angel Fund.
S Certified Corporate Director of the Institute of Corporate
Directors
S Previously Entrepreneur in Residence with Incubes
S Past member of Small & Medium Enterprise Committee of
The Ontario Securities Commission
S Investment Committee of Mount Saint Vincent University,
Halifax, NS
S 32 yr. Career with Scotia Capital as a Financial Risk
Management Advisor to Fortune 200 Companies: Rogers,
Irving Group, Empire Co., Four Seasons, Bruce Power, OPG,
Province of Ontario, Ford etc.

3. S Introduction
S Fair Market Value
S Revenue Companies
S Business Valuations
S Investor Expectations
S Pre-Commercialization
S Q & A
AGENDA
3

4. Valuation - Agreement of
Price to Buy and Sell
4

5. The Valuation of a company is the price to buy the entire company whether it is
public or private often quoted in the price of a share. For a private company
you need to know the total value usually stated as Pre- Money Valuation before
investment or Market Capitalization (post money valuation) after investment.
5
Introduction

6. 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.``
6

7. Revenue Companies
1. Multiple of EBITDA 5. Book Value
2. Discounted Cash Flow 6. Market Value
3. Comparable transaction method 7. Liquidation Value: Forced or Orderly
4. Total Enterprise Value
7

8. Business Valuations
S Every valuation and Pricing is unique
S 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
S 43% of Canadian business owners who
are within 10 years of retirement and
have no transition plans
S 65% of business owners don’t know
what their company is worth
S 75% of their worth is tied up in their
business
8

9. Investor Expectations
S , as a M&A buyer paid < 20 mil with <20 people for 90 % of it`s
targets
S An Angel Investor has traditionally expected a return of 10X on invested capital
S Valuations for tech start-ups have been increasing in recent years while the
stock market decreases in valuation
S According to CB Insights; between 2012 and 2014, the capital efficiency ratio
for 1b exits for VC backed US tech exits has been cut in half, dropping from
22x to 9x.
S The capital efficiency of exits in the $500m - $1b range fell by 46% to 7.5x
S Exits in the $100m to $500m range also saw a decrease, although the trend9

10. Valuation – How Subjective is
it?
10

11. S Ready to make some money
S I will auction off $20 to the highest bidder
S Three rules:
S Bid increments must be in amounts of $1
S You must have cash in your pocket to bid
S While the highest bidder obtains the $20, the second highest bidder must pay a
penalty equal to his or her last bid. The penalty payment will go to Start-Up Canada
– Halifax.
11
Valuation Exercise
Valuations are as much an art as a
science

12. Investor Expectations
S At the end of the day valuations are subjective
S Many VC`s will not discuss investment until a price is set
S Many VC’s will try to neutralize valuation through terms and conditions such a
liquidity preference.
S A high valuation may create an orphaned financing or even worse a future down
round
S Businesses are sold not bought, a business should be preparing for an exit from
the start
12

13. Investors Expectations
S 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`
S 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)
S Has the founder bootstrapped the company to a sustainable level
S Are you raising enough money to last you 18 to 24 months?
13

14. S “Valuation metrics in some sectors do
appear substantially stretched –
particularly those for small firms in the
social media and biotechnology
industries, despite a notable downturn
in equity prices for such firms early in
the year.” Janet Yellen, Federal
Reserve Board Chair in her report to
congress on the state of monetary
policy – July 2014
14
Are Current Valuations
Sustainable?

15. S When you are offering equity to employees
S When you are trying to raise equity financing
S When you are trying to sell the business
15
When does a Pre-Revenue
Need a Valuation

16. Pre-Commercialization
Methods
16
1. Venture Capital Method (ARI)
2. Scorecard Method (Bill Payne)
3. Risk Factor Method (ARI)
4. The Shamrock Method (David Berkus Hybrid)
5. Strategic value based on assumptions of acquisition
6. Comparable companies with similar forecasted profit

17. Venture Capital Method
17

18. Scorecard Method
18
Management - quality team in place, except sales
Opportunity - appears to be a huge opportunity
Product – disruptive technology, prototype done
Sales – team not in place , channels unclear
Competition – many small players, lack technology
Other Factors – foreign Market, partners

19. Risk Factor Method
19
S Stage of the business
S Legislation/Political risk
S Manufacturing risk
S Sales and marketing risk
S Funding/capital raising risk
S Competition risk
S Technology risk
S Litigation risk
S International risk
S Reputation risk
S Potential lucrative exit

20. Shamrock Method
“A David Berkus Hybrid”
20
S Credit for Actual Invested Capital (no sweat equity)
S Up to 450K for Disruptiveness of Technology & Patents
S Up to 450K for Proof of Concept or Product Validation
S Up to 450K for Business Model, pricing, etc.
S Up to 450k for go to market strategy, traction, growth…
S Up to 450K for Management Team
S Up to 450K for other including advisors, governance, financials, company
infrastructure, etc.
S Credit for 2 years of revenue run rate up to 3 years

21. S 237 Investments in 2014 totaling $90.5 m, an increase from 2013 of 199
investments and a increase in investment from 89.0 m
S Average investment is $1,229k up fr $945k 2013 from over 1700 investors
down from 2100 in 2013
S Investments in $ 89% - Ont & Que, 10% West, 1% Atlantic
S ICT (42%), Life Sciences (41%), Clean Tech (3%)
S Valuation – Median $4.0m, Mean 5.6m
S 61% of transactions involved a co-investor
S Of 2972 applications in Canada 7.9% get funded by networks
21
Canadian Angel Investment Group
Activity - 2014

22. S Median Angel Round Size $800K in ’14 up
from $600k in 2013. Mean Angel Round
Size $1.64m in 2014 up from $1m in 2013
S Pre-Money Valuations continue to climb at
$3M in 2014 up 20% from 2013; however,
top valuations increased from $9.3M to
$13.5M
S 72% of deals occur in angel groups’ home
states
S 73% of Angel Deals are Syndicated or Co-
Invested
S Median Round Size $2M in ‘14 from $1.8M
in 2013 when co-invested
S Share of Deals by Sector - Internet 34.6%(-
), Healthcare 18.3%(+), Mobile & Telecom
15.3%(-), Software (non-Internet/mobile)
4.2%(-)
22
Angel Resource Institute – Halo Report
-2014

23. s is what they base their Valuation on
S This is what investors base their valuation on:
S High anticipated growth rate
S Experienced management team
S Sustainable competitive advantage
S Barriers to entry
S Clear strategy for commercialization
S Proof of concept or enterprise level validation
S Business model anchored in Reality
S Traction (sales or user)
S Investor exit strategy
23
In Summary:
WHAT INVESTORS LOOK FOR

24. 1. National Angel Capital Organization 2014 Report on Angel Investing Activity in Canada.
2. Angel Resource Institute – Halo Report – Angel Group Update: 2014
3. Valuing Pre-Revenue Companies by Andrew Maxwell RIC Centre c CIC- Canadian Innovation Centre 2011
4. How do Investors Value Pre-Revenue Companies? By Leo Polovets, Forbes Magazine – Dec 24, 2014
5. Entrepreneurs, here’s how to think about your valuation by Bernard Moon, Sparklabs Global Ventures – Venturebeat.com
– Oct 5, 2014
6. The Berkus Method: Valuing an Early Stage Investment by David Berkus -The Berkonomics – Mar 27, 2012
7. Tech Start-ups: Take the Money and build by Howard Tullman – Money Magazine
8. 2012 Valuation Survey of Angel Groups by Bill Payne
9. Valuation of Early Stage Companies, Presented by: Angel Resource Institute, October 24, 2010
10. Goodbye Capital Efficiency: Tech Start-ups are raising more, and exiting for less. CB Insights Blog July 14, 2015
24
References

25. “1/3 of all SME’s in Canada had
problems accessing additional
financing, let Jaguar Capital
help you attain the financing
you deserve”
– Gerard Buckley
25

26. Gerard Buckley, BBA, FICB, ICD.D, Acc. Dir.
Managing Director
Jaguar Capital Inc.
(C) 416-884-9522
(W) 416-645-6695
g.buckley@jaguarcapital.ca
www.jaguarcapital.ca
@jaguarcapital
@gerardbuckley
26
JAGUAR CAPITAL TEAM