Students to Start-ups Entrepreneurial Skills Workshop Series


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Students to Start-ups Entrepreneurial Skills Workshop Series

  1. 1. Students to Start-ups The Les Kilpatrick Entrepreneurial Skills Workshop Series The Art of Valuation Alex Moen Vice President, CB Capital Partners CB Capital Partners 860 Newport Center Drive Newport Beach, CA 92660 (949) 219-7462 [email_address]
  2. 2. Executive Summary <ul><li>Valuation Methodology </li></ul><ul><li>Comparable Company Analysis </li></ul><ul><li>Precedent Transaction Analysis </li></ul><ul><li>Discounted Cash Flow </li></ul><ul><li>Putting It All Together – Determining a Valuation Range </li></ul><ul><li>Appendix </li></ul>
  3. 3. Valuation Methodology <ul><li>A potential institutional investor would typically utilize a combination of the following methods and techniques to value the Company including: </li></ul><ul><ul><li>Comparable Company Analysis </li></ul></ul><ul><ul><ul><li>Value based on trading multiples of similar publicly traded companies </li></ul></ul></ul><ul><ul><li>Similar Transactions Analysis </li></ul></ul><ul><ul><ul><li>Value based on completed and pending transaction multiples in related industries </li></ul></ul></ul><ul><ul><li>Discounted Cash Flow (DCF) Analysis </li></ul></ul><ul><ul><ul><li>Value based on discounting the Company’s projected cash flows back to today’s value </li></ul></ul></ul><ul><ul><li>Book Value </li></ul></ul><ul><ul><ul><li>Minimum/liquidation value of the Company </li></ul></ul></ul><ul><ul><ul><li>Ignores the future earning power of the Company </li></ul></ul></ul>
  4. 4. Comparable Company Analysis <ul><ul><li>Determines how the market would currently value the Company </li></ul></ul><ul><ul><ul><li>Advantages </li></ul></ul></ul><ul><ul><ul><li>Reflects the market’s opinion of future growth, trends and risks </li></ul></ul></ul><ul><ul><ul><li>Includes premiums for size and maturity </li></ul></ul></ul><ul><ul><ul><li>Disadvantages: </li></ul></ul></ul><ul><ul><ul><li>Often imprecise due to non-comparable data, non-financial issues and low sample size </li></ul></ul></ul>
  5. 5. Medical Device Example
  6. 6. Precedent Transaction Analysis <ul><ul><li>Determines amounts paid for recent acquisitions of companies similar to the Company </li></ul></ul><ul><ul><li>Advantages : </li></ul></ul><ul><ul><ul><li>Includes control, synergy and auction premiums </li></ul></ul></ul><ul><ul><ul><li>Provides precedent for transaction value range </li></ul></ul></ul><ul><ul><ul><li>Reflects supply and demand for similar companies </li></ul></ul></ul><ul><ul><li>Disadvantages : </li></ul></ul><ul><ul><ul><li>Often imprecise due to lack of data, non-financial issues and low sample size </li></ul></ul></ul>
  7. 7. Precedent Transaction Analysis
  8. 8. Discounted Cash Flow <ul><ul><li>Determines the Company’s value by summing the net present value of free cash flows the ensuing projected five years and the terminal value at the end of the fifth year using a terminal value multiple </li></ul></ul><ul><ul><li>Advantages: </li></ul></ul><ul><ul><ul><li>According to modern financial theory, this is the most &quot;correct&quot; form of valuation </li></ul></ul></ul><ul><ul><ul><li>The method is least influenced by stock market conditions or the M&A environment </li></ul></ul></ul><ul><ul><ul><li>Principal valuation techniques used by foreign, large corporate, and LBO buyers </li></ul></ul></ul><ul><ul><li>Disadvantages: </li></ul></ul><ul><ul><ul><li>Sensitive to assumptions of revenue growth, operating margins, fixed capital investment, working capital investment and weighted average cost of capital </li></ul></ul></ul><ul><ul><ul><li>Does not account for a &quot;control&quot; premium </li></ul></ul></ul><ul><ul><ul><li>Does not account for the value of synergies </li></ul></ul></ul><ul><ul><ul><li>Does not account for potential auction premium </li></ul></ul></ul>
  9. 9. Discounted Cash Flow
  10. 10. Discounted Cash Flow
  11. 11. Takeaways from Discounted Cash Flow <ul><ul><li>Clearly define the DCF assumptions. </li></ul></ul><ul><ul><li>Emerging technology and life science companies will likely require more significant discounting given the increased uncertainty that the early company will meet its projections. </li></ul></ul><ul><ul><li>DCF analysis has been around (at least in some form) for centuries. </li></ul></ul><ul><ul><li>Early-stage investors will likely review a prospect’s projections and DCF with skepticism – be able to defend your assumptions. </li></ul></ul><ul><ul><li>Be able to reference other valuation methodologies to further support your analysis. </li></ul></ul>
  12. 12. Putting It All Together – Developing a Valuation Range Note: The analysis above is a sample. Each valuation range will have unique attributes given the company and the corresponding industry.
  13. 13. CB Capital Contact Information <ul><ul><li>Alex Moen </li></ul></ul><ul><ul><li>CB Capital Partners </li></ul></ul><ul><ul><li>860 Newport Center Drive </li></ul></ul><ul><ul><li>Newport Beach, CA 92660 </li></ul></ul><ul><ul><li>(949) 219-7462 (Direct) </li></ul></ul><ul><ul><li>[email_address] </li></ul></ul>
  14. 14. Appendix
  15. 15. Appendix A - Medical Device Companies in Orange County Source: Orange County Business Journal Note: There are over 300 Medical Device companies in Orange County alone.
  16. 16. Appendix A - Medical Device Companies in Orange County (cont.) Source: Orange County Business Journal
  17. 17. Appendix A - Medical Device Companies in Orange County (cont.) Source: Orange County Business Journal
  18. 18. Appendix B - VCs with an Interest in Medical Device Companies Accuitive Medical Ventures – Invested in WaveTec Vision of Aliso Viejo in February 2009 De Novo Ventures – Invested in WaveTec Vision of Aliso Viejo in February 2009 New Leaf Venture Partners – Invested in ReShape Medical of San Clemente in February 2009 SV Life Sciences – Invested in ReShape Medical of San Clemente in February 2009 U.S. Venture Partners – Invested in ReShape Medical of San Clemente in February 2009 Versant Ventures – Invested in WaveTec Vision of Aliso Viejo in February 2009 Note: There are hundreds of prospective Medical Device investors in the United States and abroad.
  19. 19. Appendix C - Prominent UCI Alumni Adam Tomasi, Ph.D., Kauffman Fellow, Alta Partners Adam joined Alta partners in 2006 as a Kauffman Fellow and focuses on investments in the life sciences. Originally trained as an organic and medicinal chemist, Adam spent seven years in early stage drug discovery with Gilead Sciences and Cytokinetics. In his last technical position, he founded and led the Anti-Infectives Medicinal Chemistry Program at Cytokinetics, which was the first group to validate KIP-1 as an anti-fungal target, and played a key role in the creation of Cytokinetics’ cardiovascular drug CK-1827452, which is currently in clinical trials. Prior to joining Alta, Adam was a student in the Harvard-MIT Biomedical Enterprise Program; he completed internships at MPM Capital and Lehman Brothers, where he was an Analyst covering the biotech sector, and attended the Harvard Medical School. Adam completed his Ph.D. at the University of California, Irvine, where he was a Fellow of the American Chemical Society and the University of California Regents, and was a post doctoral student with Peter Schultz at The Scripps Research Institute/The Genomics Institute of the Novartis Foundation. Adam holds a Bachelor of Science in Chemistry from the University of California, Berkeley, a Ph.D. in Chemistry from the University of California, Irvine, and a Masters of Business Administration from the MIT Sloan School of Management.
  20. 20. Appendix C - Prominent UCI Alumni Brian Atwood, Co-Founder & Managing Director, Versant Ventures Brian Atwood specializes in biotechnology investing at Versant. Brian co-founded Versant Ventures after spending four years at Brentwood Venture Capital where as a general partner he led investments in biotechnology, pharmaceuticals, and bioinformatics. He also has more than 15 years of operating experience in the biotechnology industry, with emphasis on therapeutic products, devices, diagnostics, and research instrumentation. Prior to launching his career in venture capital, Brian was founder, president, and CEO of Glycomed, a publicly traded biotechnology company. At Glycomed, Brian concentrated on business development and strategic alliances, closing deals with Eli Lilly & Company, Millipore, Genentech, and Sankyo, before leading the sale of Glycomed to Ligand Pharmaceuticals. Prior to this, he co-founded and served as director of Perkin Elmer/Cetus Instruments, a joint venture for robotics automation and genomics research instruments and products later acquired by Perkin Elmer. Under Brian's management, the venture developed and launched the GeneAmp® Polymerase Chain Reaction (PCR) system, the fundamental DNA amplification innovation responsible for fueling the explosive growth of genomics research. Brian served on the Board of Directors at Pharmion Corporation (sold to Celgene in 2008). Brian currently serves as a Board member at the private companies ForteBio Inc., FivePrime Therapeutics, Inc., Veracyte, Inc., Trius Therapeutics, Inc., Synosia Therapeutics, OpGen, Inc., PhaseRx, Inc., and Immune Design Corp., as well as public companies, Cadence Pharmaceuticals (CADX), and Helicos Biosciences (HLCS). Brian received a Bachelor's degree in Biological Sciences from the University of California, Irvine; a Master's degree from the University of California, Davis, and an MBA from Harvard Business School. *Disclaimer: Brian Atwood is focused on biotechnology, pharmaceuticals and bioinformatics.
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