0
Company Capitalization Scenario Raising Capital and Ownership Value
The Founders <ul><li>Founders: You and Partners   </li></ul><ul><ul><li>Have a Concept for Exciting Business Idea </li></u...
Round #1 Financing <ul><li>Start-up Financing or Seed Capital Needed: </li></ul><ul><ul><li>To produce persuasive and prof...
Round #1 Financing - Friends & Family <ul><li>You Decide to Seek $100,000 from F&F. </li></ul><ul><li>You Negotiate with F...
Round #2 Financing <ul><li>Seek Venture Capital From VC Firms. </li></ul><ul><ul><li>Must decide how much $$ needed. </li>...
Post Round #2   Ownership <ul><li>New Ownership Valuation-Cap Table. </li></ul><ul><ul><li>VC owns 50% of company--$2m  of...
Round #3 Financing <ul><li>Company Now 2-3 Years in Business. </li></ul><ul><li>Revenue Growing; Profits Foreseeable. </li...
Post Round #3 Ownership <ul><li>LVC  now owns 28.6% ($4m/$14m=28.57%).  Value of Ownership: $4m. </li></ul><ul><li>VC owns...
Round #4 Ownership Liquidity <ul><li>Assume: </li></ul><ul><ul><li>Company now 5+ years in business </li></ul></ul><ul><ul...
Three Liquidity Options <ul><li>Borrow Money from Bank (Debt). </li></ul><ul><ul><li>Banks reluctant to loan for sharehold...
IPO <ul><li>IPO Steps: </li></ul><ul><ul><li>Valuation of company—bankers participate </li></ul></ul><ul><ul><li>Our compa...
Post-IPO Company Value & Ownership <ul><li>Company Now Valued at $125m </li></ul><ul><ul><li>$100m Pre-IPO + $25m Post-IPO...
Return on Investment: IPO Day <ul><li>Valuation of Each Investor at Close of IPO (Assuming Price Same as Offered) and ROI ...
Upcoming SlideShare
Loading in...5
×

Company Capitalization Scenario - Media Economics

490

Published on

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
490
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
11
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Transcript of "Company Capitalization Scenario - Media Economics"

  1. 1. Company Capitalization Scenario Raising Capital and Ownership Value
  2. 2. The Founders <ul><li>Founders: You and Partners </li></ul><ul><ul><li>Have a Concept for Exciting Business Idea </li></ul></ul><ul><ul><li>Have Sketched a General Business Plan (BP) </li></ul></ul><ul><ul><li>Prospects for Success Appear Promising </li></ul></ul><ul><ul><li>Need Financing to Pursue Your Dream </li></ul></ul>
  3. 3. Round #1 Financing <ul><li>Start-up Financing or Seed Capital Needed: </li></ul><ul><ul><li>To produce persuasive and professional BP </li></ul></ul><ul><ul><li>Some research on market and competition </li></ul></ul><ul><ul><li>For travel expenses to raise working capital </li></ul></ul><ul><li>Round #1 Friends & Family </li></ul><ul><ul><li>Objective: Raise minimum $100,000 to cover expenses above. </li></ul></ul>
  4. 4. Round #1 Financing - Friends & Family <ul><li>You Decide to Seek $100,000 from F&F. </li></ul><ul><li>You Negotiate with F&F and Give Them 10% Ownership. </li></ul><ul><ul><li>Ten percent of the shares of company stock. </li></ul></ul><ul><li>Company has imputed value of $1 million. </li></ul><ul><ul><li>F&F own 10% of company, invest $100,000. </li></ul></ul><ul><li>Founders Own 90% of Company, No Cash Investment (Sweat Equity). </li></ul>
  5. 5. Round #2 Financing <ul><li>Seek Venture Capital From VC Firms. </li></ul><ul><ul><li>Must decide how much $$ needed. </li></ul></ul><ul><ul><li>With interested VCs, founders must negotiate the company valuation and percent of VC ownership. </li></ul></ul><ul><ul><li>Pre-money Valuation—Company Value Before VC Investment—Assume $2 million. </li></ul></ul><ul><li>Assume Successful In Raising $2 million @ $2m Pre-money Valuation. </li></ul><ul><ul><li>Post-money Valuation: $4 million </li></ul></ul><ul><ul><li>New VC investor: VC owns 50% of company. </li></ul></ul>
  6. 6. Post Round #2 Ownership <ul><li>New Ownership Valuation-Cap Table. </li></ul><ul><ul><li>VC owns 50% of company--$2m of $4m– company valuation. Value of ownership: $2m. </li></ul></ul><ul><ul><li>F&F own 5% (diluted from 10%)--5% x $4m. Value of ownership: $200,000. </li></ul></ul><ul><ul><li>Founders now own 45% (remaining after VC’s 50% and F&F’s 5%). Value of ownership: $1.8m. </li></ul></ul>
  7. 7. Round #3 Financing <ul><li>Company Now 2-3 Years in Business. </li></ul><ul><li>Revenue Growing; Profits Foreseeable. </li></ul><ul><li>Seek Larger VC or Strategic Investor. </li></ul><ul><li>Successful in Raising $4m at Pre-money Valuation of $10m. </li></ul><ul><li>Company Valuation Now $14m, But No Liquid Market for Private Company Shares. </li></ul><ul><li>New Investor: Large VC Firm (LVC) </li></ul>
  8. 8. Post Round #3 Ownership <ul><li>LVC now owns 28.6% ($4m/$14m=28.57%). Value of Ownership: $4m. </li></ul><ul><li>VC owns 35.7%--50% of the remaining 71.43%. Value of ownership: $5m. </li></ul><ul><li>F&F own 3.57%--5% of remaining 71.43%. Value of ownership: $.5m </li></ul><ul><li>Founders own 32.14%--45% of remaining 71.43%. Value of ownership: $4.5m </li></ul>
  9. 9. Round #4 Ownership Liquidity <ul><li>Assume: </li></ul><ul><ul><li>Company now 5+ years in business </li></ul></ul><ul><ul><li>Annual revenues: $50m </li></ul></ul><ul><ul><li>Operating income for same year: $10m </li></ul></ul><ul><ul><li>Shareholders want liquidity—to be able to sell some of their shares for cash. </li></ul></ul>
  10. 10. Three Liquidity Options <ul><li>Borrow Money from Bank (Debt). </li></ul><ul><ul><li>Banks reluctant to loan for shareholder liquidity. </li></ul></ul><ul><li>Sell to Strategic Buyer (Another Company). </li></ul><ul><ul><li>Strategic buyers often bargain tough on price and usually want control. </li></ul></ul><ul><li>Sell Shares to Public: IPO </li></ul><ul><ul><li>Public usually pays premium price, driven by Wall Street bankers and brokers, and shareholders would have liquidity--a market in which to sell their shares. </li></ul></ul>
  11. 11. IPO <ul><li>IPO Steps: </li></ul><ul><ul><li>Valuation of company—bankers participate </li></ul></ul><ul><ul><li>Our company: $50m revenues and $10m operating income. </li></ul></ul><ul><ul><li>Media companies values today range from 1.5-2.5x revenues- and 8-12x operating income. </li></ul></ul><ul><ul><li>Assume 2x revenues and 10x operating income: </li></ul></ul><ul><ul><ul><li>$100 million valuation--pre-money and pre-IPO </li></ul></ul></ul><ul><ul><li>Company raises $25M in shares sold to public for a 20% share in the company (25/125=20). </li></ul></ul>
  12. 12. Post-IPO Company Value & Ownership <ul><li>Company Now Valued at $125m </li></ul><ul><ul><li>$100m Pre-IPO + $25m Post-IPO </li></ul></ul><ul><li>Ownership: (Cap Table): </li></ul><ul><ul><li>Public: 20%--$25/$125m=$25m </li></ul></ul><ul><ul><li>LVC: 22.88%--80% x 28.6%=$28.6m </li></ul></ul><ul><ul><li>VC: 28.56%--80% x 35.7%=$35.7m </li></ul></ul><ul><ul><li>F&F: 2.86%--80% x 3.57%=$3.57m </li></ul></ul><ul><ul><li>Founders: 25.7%--80% x 32.14%=$32.14m </li></ul></ul>
  13. 13. Return on Investment: IPO Day <ul><li>Valuation of Each Investor at Close of IPO (Assuming Price Same as Offered) and ROI : </li></ul><ul><ul><li>Founders: Invested 0 cash. Current value: $32.14m </li></ul></ul><ul><ul><li>F&F: Invested $100,00. Current value: $3.57m=3470% ROI </li></ul></ul><ul><ul><ul><li>$3,570,000-100,000=$3,470,000/100,000=34.7 or 3470%) </li></ul></ul></ul><ul><ul><li>VC: Invested $2m. Current value: $35.7m=1685% ROI </li></ul></ul><ul><ul><li>LVC: Invested $4m. Current value: $28.6m=612.5% ROI </li></ul></ul><ul><ul><li>Public: Invested $25 m. Current value: $25m=0 ROI </li></ul></ul>
  1. A particular slide catching your eye?

    Clipping is a handy way to collect important slides you want to go back to later.

×