Startup Business Valuation


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How do you value your startup business?

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Startup Business Valuation

  1. 1. Course Objective To learn how to value a private company for the purposes of raising money.
  2. 2. Key Learning Outcomes ● Learn how assets are valued ● Determine the value of any business ● Understand how to have the conversation of valuation with investors
  3. 3. What is Valuation Valuation is value of an asset. The asset in a private company is its "stock" or equity which represents the % ownership stake in the company.
  4. 4. How is Valuation set? Requires an educated guess by the seller to start with an "asking price": ● What have similar assets sold for? ● Why have they sold? ● What will be / are the primary drivers of value? Valuation is "set" where the buyer and the seller of an asset meet at a price.
  5. 5. Valuation: Every Asset Has Value
  6. 6. And it can be negative!
  7. 7. How Value Determined?
  8. 8. How Value Determined?
  9. 9. How Value Determined?
  10. 10. How Value Determined?
  11. 11. To bring in an investor, a Business Owner has to sell something - that something is Equity ("Stock"). The amount of stock sold to the investor represents a percentage ownership in the company. The "Asset" of a Business = Stock
  12. 12. ● What have other similar companies been valued at? ● What percentage of the company are you willing to give up for $x ● Create a market and get people to "bid" - i.e. make an offer to invest How to Value Stock
  13. 13. A Financial Model with a Discounted Cash Flow Model "DCF" The Formal way to Value Stock
  14. 14. ● Cash flow can be interpreted many ways – there are no “right” or “wrong” answers ● You need to define the context of cash flow and be consistent in its analysis ● Stocks: Many use earnings before interest tax depreciation amortization (EBITDA) and subtract Capital Expenditures ● Cash Flow needs to be what you as an owner will reap from your investment – after everyone else is paid. You define Cash Flow
  15. 15. 1. Future cash flows are estimated 2. Discounted back at an appropriate rate (often a firm’s cost of capital) 3. Divided by ownership rights (shares) to determine the value per owner (per share) Discounting the Cash Flow
  16. 16. ● Every asset is only worth what someone is willing to pay for it ● Supply vs. Demand ● All valuations have highly subjective inputs that need to be evaluated by the buyer (and seller) Every DCF Valuation can be argued
  17. 17. Valuation thru Modeling: Myth #1 Since Valuation is quantitative, Valuation is objective While quantitative, inputs leave plenty of room for subjective judgments Final values derived from models are colored with human bias
  18. 18. Valuation thru Modeling: Myth #2 A well-researched model and well-done valuation is timeless Valuation can change everyday with constant inputs from the marketplace
  19. 19. Summary. Valuation of an Asset is: ● Often subjective, colored by the bias of its inputs ● Determined by ○ investor perceptions about it ○ Supply and Demand ● The Present Value of the future cash flows
  20. 20. Keys to Success ● Create a market. The only way to sell stock is to have a group of willing buyers! ● Leave the valuation conversation to the end - get potential investors enamored with the story first.
  21. 21. FAQs Who sets a valuation? Once you decide your valuation, do you put a stake in the ground and that's what it is? Pros and Cons of having a high/low valuation.
  22. 22. FAQs Is there a right or wrong valuation? Can valuation change over time? Does my valuation change each time I try to bring money in?
  23. 23. FAQs What are typical valuations for startup companies? Range? Do I have to set a valuation before I know how much money to raise? Is the equity I have to give to investors affected by my valuation?
  24. 24. FAQs Does a higher valuation make me looked at as more likely to succeed? Do I have to have a valuation when seeking capital? Does a valuation play into investor psychology?
  25. 25. FAQs When and how do you negotiate Valuations?
  26. 26. Action Plan ● Discover an Estimated Valuation ○ What have other companies sold stock for? ○ What are you willing to give up? ○ Be informed of the economic upside of your company ● Engage potential buyers ● Ask them to offer you a term sheet ○ Great video < 2 minutes ○ Engaging write-up ○ Unique rewards
  27. 27. Next Steps ● Join our Master Fundraising Course ● Join us now for 50% off ● "FAN" ● Feedback: Jason (at)
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