Valuing early stage companies (Venture Fast Track)
•
4 gostaram•2,262 visualizações
The document provides biographies of four speakers at a TCN FastTrack event on valuing early stage companies: Jeremy Halpern, Enrico Picozza, Bill McCullen, and Joshua Herzig-Marx. It then discusses common sources of early stage capital like bootstrapping, equity financing from angels and VCs, and types of equity investment vehicles. Finally, it covers topics like avoiding the "capital gap" and how dilution works as valuation increases.
Recomendados
Recomendados
Mais conteúdo relacionado
Mais procurados
Mais procurados (20)
Semelhante a Valuing early stage companies (Venture Fast Track)
Semelhante a Valuing early stage companies (Venture Fast Track) (20)
Mais de The Capital Network
Mais de The Capital Network (20)
Último
Último (20)
Valuing early stage companies (Venture Fast Track)
- 1. TCN FastTrack -‐ October 2013 Valuing an Early Stage Company Jeremy Halpern @startupboston Partner, Nutter McClennen & Fish Joshua Herzig-‐Marx CoFounder, Incentive Targeting (acquired by Google 2012) Enrico Picozza HLM Venture Partners Bill McCullen Launch Capital #TCNLive #StartUpValuation
- 2. Jeremy Halpern Biography › Nutter, McClennen & Fish, LLP -‐ Partner; Director of Biz Dev, Emerging Companies Team • Top 10 Boston law firm • Represent clients in technology, hardware, software, mobile, medical devices, health IT, biotechnology, cleantech CPG, consumer electronics, sports & entertainment • Provide support and outreach to the entrepreneurial community › Boards and Organizations › MassVentures – Director & Investment Committee Member • The Venture Arm of the Commonwealth-‐-‐ catalyzing innovation in Massachusetts by providing seed and early stage venture funding to high growth technology startups. › The Capital Network – Director; Past Chairman • Providing education, resources and community to high growth entrepreneurs and angel investors as they navigate the early stage capital process › Entrepreneurial Experience – Cofounder -‐ MobileTek › UC Berkeley, B.A. (Go Bears!); UCLA School of Law, J.D. › 2012 recipient of The Boston Business Journal’s “40 under 40 Award” 2
- 3. Enrico Picozza Biography › Current › Venture Partner – HLM Venture Partners › Previous › HTS Biosystems, Inc., › PerkinElmer, Inc. › Applied Biosystems, Inc. › Holds nine patents and has been › Recognized by the Smithsonian Institute for his achievements in PCR › Board observer for Interlace Medical › Master’s degree in molecular and cell biology from the University of Connecticut. 3
- 4. Bill McCullen Biography › Current › Director, LaunchCapital › Over 7 years backing companies in the networking, semiconductor, clean energy and online markets. › Previous › Sycamore Networks › Windspeed Access Systems › Continuum Photonics › Mintera › Susquehanna Financial › BS and MS degrees in Electrical Engineering at Worcester Polytechnic Institute › MBA from the MIT Sloan School of Management 4
- 5. Josh Herzig-‐Marx Biography › Currently with Google › Co-‐founder of Incentive Targeting which sold to Google in 2012 › Previously: Client Manager at SunGard iWorks and Navimedix › MBA from Babson College 5
- 6. Sources of early-‐stage capital • Bootstrapping – Founder’s capital and credit cards, bank lines of credit, loans (SBA) • Equity Financing (Early) – Friends and family, crowdfunding, individual angels, organized angel groups, early stage venture capitalists • Equity Financing (Early to Later) – Venture capitalists, corporate venture funds, private equity firms, hedge funds, and ultimately the public markets 6
- 7. Sources of early-‐stage capital – Cost:Size Angel Groups Angels Traditional VC AngelList Micro VC Crowdfunding Investment “Cost” Friends & Family Founder Personal Loans Private Equity Corporate / Strategic Venture Portal Funding Venture Debt Bank Loans Vendors Equipment Financing Customers Grants Investment Size
- 8. Avoid the “Capital Gap” Mind the Gap ! Stage Pre-‐ Seed Seed Start-‐Up Market Entry Source Founders, Friends and Family Individual Angels, MicroCaps Accelerators Micro Cap VCs, Angel Groups and Angel Group Syndication $25,000 to $100,000 $100,000 to $500,000 $500,000 to $2,500,000 Investment Early Later Venture Funds $5,000,000 and up (initial capital may be smaller, but exit targets higher) 8
- 9. Equity Investment Vehicles • Common Equity – Typical for Founders – Not typical for new, sophisticated investors – Restricted stock and Options • Debt and Convertible Notes – Often used by early stage companies to avoid valuation – Not the best mechanism for aligning Founders and investors • Preferred Equity – Primary mechanism for sophisticated angels, angel groups and VCs 9
- 10. Dilution -‐ Valuation’s relationship to Ownership Pre-‐money $ 1,500,000 $ 2,000,000 $ 2,250,000 $ 2,500,000 $ 2,750,000 $ 3,000,000 $ 3,250,000 $ 3,500,000 Note $ 610,717 Series A $ 1,500,000 $ 1,500,000 $ 1,500,000 $ 1,500,000 $ 1,500,000 $ 1,500,000 $ 1,500,000 $ 1,500,000 Option Pool (8.25%) $ 297,884 $ 610,717 $ 610,717 $ 339,134 $359,759 $ 610,717 $ 610,717 $ 610,717 $ 610,717 $ 610,717 $ 380,384 $ 401,009 $ 421,634 $ 442,259 $ 462,884 Post-‐money $ 3,908,601 $ 4,449,851 $ 4,720,476 $ 4,991,101 $ 5,261,726 $ 5,532,351 $ 5,802,976 $ 6,073,601 Investor Ownership 54% 47% 45% 42% 40% 38% 36% 35% Management Ownership 46% 53% 55% 58% 60% 62% 64% 65% 10
- 11. Risk vs. Return High Risk • Raising money takes place over and over again because different lenders and investors match the current capital amounts and risk profile Capital Needs Low Risk Time Crystallize Ideas Demonstrate Product Market Entry Early Scaling Growth Sustained Growth 11
- 12. The Long View – Total Capital Requirements • Understand the capital needed today, and the total capital needed to get to milestones (e.g. exit!) – Type of business (e.g. SaaS, Medical Equipment)? – Cost of getting to market? – Cost of ramping and running the business? • Compensate the management for getting to this point – What do they need for future motivation? – How many more senior people will be hired w/ options? • Look at comparable exits to understand likely exit multiple – Don’t forget to account for invested capital! • Is this a business investors can afford to invest in? 12
- 13. Quantitative Methods – Valuing Mature Companies • Valuation Based on Measuring…. – Sales (Multiple of revenue –P/R) – Net Income (P/E) – Cash Flow (EBITDA or Free Cash Flow) – Discounted Cash Flow (DCF) – Discounted Future Earnings – Net Worth or Book Value – Real Options, Black Scholes, etc. • NONE OF THESE APPLY TO STARTUPS! 13
- 14. Valuation Issues • • • • • • • • • • Market Test & the Power of Auction: Leverage Round size Source (Angel, VC, Strategic etc.) Total Capital Requirements Terms vs. Pre-‐Money Price Impact of Option Plans Price less important than relationship Positioning for future Impact of Convertible Debt from F&F On the “Promise” or the “Numbers” but not both!
- 15. Qualitative & Quantitative Factors • COMPARABLES – Valuation of deals recently completed in a similar space • KEY ASSETS OF THE COMPANY – Management: Commitment Knowledge & Experience – Intellectual Property & Defensibility – Financials & Time to Profit – Milestones Achieved – Revenue – Customers and Feedback – Barriers to Entry • FINANCING HISTORY / NEEDS – – – – – Funding to Date Future Funding Needs Last Round Post-‐Money Valuation When was last round completed Is the stock option pool sufficient • SIZE AND GROWTH OF MARKET – Current Size & Targeted Market • NOT the Total Available Market – Growth -‐ CAGR 15
- 16. Early Stage Company Valuation Methodologies • Venture Capital Method (used also by many angels) – Future revenue x industry multiple x pro rata percentage x IRR = current value • Discounted Hypothetical Cash Flow / Net Present Value – Based on fiction • Chicago (DCF x probability tiers) – Same issue as above • Berkus (finger in the air) – Maximums per attribute (max $2.5m) • OTA/Payne – Comparison to average x weight – Helpful for biotech/cleantech • Risk Factor Method – Highly subjective – a more detailed version of Berkus Method • Opportunity Cost / Contribution Model – Based on sweat and lost alternative revenue • 1/3 Max rule – Treats angels like co-‐founders and weight cash versus sweat • Transaction Comparables – Hard to find like deals; general market trends may apply
- 17. Investor-‐Driven Method (aka Venture Math) • VALUATION -‐ Investor Requirements – – – – – Return rate required by investor (VC driver) 10X to 20X – what is it? Time Frame – 3-‐5-‐7 years Any initial ownership goals Valuation can be determined by working in reverse from exit valuation assuming hypothetical intervening dilution • VALUATION -‐ Investor Internal Dynamics – What you can sell to your syndicate partners – Size of fund and time since fund inception – Minimum Investment = meaningful percentage? 17
- 18. Dave Berkus Method If it exists, then Add to Company value Sound idea $500k Prototype $500k Quality Team $500k Quality Board $500k Initial Sale $500k Valuation Range = $0 -‐ $2.5 million 18
- 19. Bill Payne Method Factor Management Size of Oppty Product/Service Sales Channels Stage of Business Other Weight 30 25 10 10 10 15 100% Rating (100% basis) Comment 125 On board, ex sales 115 Could be huge 110 Disruptive platform 70 All foreign 125 Prototype works 80 All revs outside US Weighted Average Rating = 1.0875 Pre-‐revenue Multiplier = $1.75 million Valuation = 1.0875 x $1.75 million = $1,903,125 19
- 20. Risk Factor Summation Method (same company) Baseline Risk Factor Management Stage Funding Risk Regulatory Manufacturing Sales & Mktg Competition Technology Litigation International Reputational Exit Valuation = $1.75 million Adjustment (-‐$500k to +$500k) +$500k +$250k -‐$250k 0 +250k -‐$500k +$250k +$250k 0 -‐$500k -‐$250k +$250k $250k $2.0 million Comment Done it before Prototype works Int’l mkts tough Unregulated mkt Nothing new Int’l mkts Few in target mkt Off shelf parts None expected All revs Int’l Int’l issues Likely early 20
- 21. Structure to allow value growth over time • Underlying Assumption – All business is a risk adjusted cash flow – Structuring a deal is “guessing” what the exit valuation will be • Valuation is a “Black Art” – Goal is to quantify a qualitative assessment, and then…. – Negotiate the deal so that everyone feels just a bit unhappy • Setting Deal Structure – MUST understand total capital requirements and likely capital sources – Need to understand option pool needs – Other economic terms include: liquidation preference, dividends, anti-‐ dilution adjustment and vesting of founder’s stock and option pool GOAL: Founders, Management, Early Investors and Later Investors all have great risk adjusted returns 21
- 22. Average Valuations -‐ Wisdom of the Angel Crowd The average pre-‐money valuation for a pre-‐revenue company across the US is $2.1 million 22
- 23. Contact Info TCN FastTrack October 2013 Valuing an Early Stage Company Jeremy Halpern Partner Nutter McClennen & Fish jhalpern@nutter.com @startupboston 617.439.2943 23