How to valuate your company, with Capricorn Venture Partners (Finance for Startups- part 2)
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How to valuate your company, with Capricorn Venture Partners (Finance for Startups- part 2)

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How to valuate your company, with Capricorn Venture Partners

How to valuate your company, with Capricorn Venture Partners
Finance for Startups event, May 28, 2013, @ICAB Brussels

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How to valuate your company, with Capricorn Venture Partners (Finance for Startups- part 2) How to valuate your company, with Capricorn Venture Partners (Finance for Startups- part 2) Presentation Transcript

  • CapricornVenturePartnersHow to value your company?Finance for Start-Ups May 28, 2013
  • CAPRICORN VENTURE PARTNERSIn short2 All rights reserved
  • Partners-owned20 people organisation, 20 years existenceLicensed asset manager – AIFMD compliantOver € 250 million under managementCapricorn Venture Partners3 All rights reservedICT€ 15 millionCLEANTECH€ 112 millionQuest for Growth€ 106.8 million** December 31, 2012Quest Cleantech Fund€ 11.0 million** December 31 , 2012HEALTHTECH€ 42 millionHead office, Leuven, Belgium
  • DISCLAIMERThe views expressed in this presentation do not necessarily reflectthe views of the Capricorn Venture Partners or its investmentmanagers.4 All rights reserved
  • HOW TO VALUE YOUR COMPANY?Capricorn Venture Partners5 All rights reserved
  • Venture capital reality6Most capital get raised to address specific operational needs beforesignificant value has been created. In those instances the strategicinterest of new and existing investors to obtain or maintain a certainpercentage interest in the company prevails over the valuation models.In most cases traditional valuation models become only relevant atexit.All rights reserved
  • Conventional Valuation Techniques7• Discounted cash flow• Price / earnings ratio• Price / EBITDA ratio• Price / sales ratioAll rights reserved
  • Issue8Cash flow, earnings, EBITDA, sales, … ?????All rights reserved
  • Alternative Valuation Techniques9• 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 payAll rights reserved
  • Who is afraid of dilution?10 All rights reservedWhat 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 thelegally binding values• Keep it simple11 All rights reserved
  • A simple cap table example12price 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 14.333.333post money 1.250.000 4.500.000 10.750.000 18.333.333 20.370.370total 10.350.000 5.092.593All rights reserved
  • A simple cap table example - exit13price per share investment shares series C + SOP exit multiple€ € # €founders 100.000 1.000.000 20% 15.709.091 157seed investor 1 250.000 250.000 5% 3.927.273 15,7Series A investors 2 2.000.000 1.000.000 20% 15.709.091 7,9Series B investors 3 4.000.000 1.333.333 26% 20.945.455 5,2Series C investors 4 4.000.000 1.000.000 20% 15.709.091 3,9stock option plan 509.259 10% 8.000.000pre moneypost money 20.370.370 80.000.000total 10.350.000 5.092.593 7,7exit value 80.000.000stock-options 10%All rights reserved
  • DEMONSTRATE NON-FINANCIAL VALUECREATIONCapricorn Venture Partners14 All rights reserved
  • 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 quarter15 All rights reserved
  • 16 All rights reserved
  • THE PITFALLS FOR START-UPSCapricorn Venture Partners17 All rights reserved
  • 5 reasons why you will fail181. Don’t underestimate the time to market4. It is not easy to convince a million consumers5. In love and in business you have to let go sometimes3. Big data is not a free for all2. Beware of “It’s kind of a …”All rights reserved
  • 2 reasons why you will be succesful19 All rights reservedTeam 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 shareholdersagreement and stock option plans20 All rights reserved
  • 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 viewof a $ xxx million acquisition?• Any change of control clauses in your contracts with customers,suppliers, license agreements21 All rights reserved
  • 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 network22 All rights reserved
  • 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 IPo Full ownership of patent(s) by the company remains the preferred model!o Exclusive license with transfer rights and right/obligation to defend sourceIP?o FTO - Freedom to operate is key• During the investment period• At exit (most likely via M&A transaction)23 All rights reserved
  • THE PITCHCapricorn Venture Partners24 All rights reserved
  • Pitching is a lot like dating251. Don’t order the most expensive thing on the menu4. Have realistic expectations5. Learn how to deal with disappointments3. Be aware that you will be stuck with eachother for a while2. Be yourselfAll rights reserved
  • For further inquiriesContact:Tom Vanhoutte (tom@capricorn.be)Capricorn Venture PartnersLei 19/1, B-3000 Leuven, BelgiumTel +32 16 284100 Fax +32 16 284108http://www.capricorn.be26 All rights reserved