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Lunch and Learn: Valuation of Early Stage Companies

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A Lunch and Learn Presentation by Gerard Buckley, MLA Member, Board Chair and Managing Director of Jaguar Capital

A Lunch and Learn Presentation by Gerard Buckley, MLA Member, Board Chair and Managing Director of Jaguar Capital

Published in: Business, Economy & Finance

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  • 1. V A L U A T I O N
  • 2. www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels AGENDA FAIR MARKET VALUE INTRODUCTION REVENUE COMPANIES BUSINESS VALUATIONS INVESTOR EXPECTATIONS PRE-COMMERCIALIZATION
  • 3. www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels INTRODUCTION The Valuation of a company is the price to buy the entire company whether it is public or private. It is usually quoted in the price of a share; however, for a private company you need to know the total value usually stated as Pre- Money Valuation before investment and Post- Money Valuation or Market Capitalization after investment.
  • 4. www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels FMV-FAIR MARKET VALUE ``The price , expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arms length in a open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts.``
  • 5. www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels REVENUE COMPANIES 1. Multiple of EBITDA 2. Discounted Cash Flow 3. Comparable transaction method 4. Book Value 5. Total Enterprise Value 6. Market Value 7. Liquidation Value: Forced or Orderly
  • 6. www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels BUSINESS VALUATIONS • Every valuation and Pricing is unique • In a M&A Transaction price or valuation comes down to the strategic value the acquirer brings to the transaction & the portion paid to the target • 65% of business owners don’t know what their company is worth • 85% have no exit strategy • 75% of their worth is tied up in their business
  • 7. www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels INVESTOR EXPECTATIONS • , the most active M&A buyer paid < 20 mil with <20 people for 90 % of it`s targets • An Angel Investor has an expectation of 10X • Survey conducted among USA angel groups by Bill Payne in 2012. Average Pre-Money valuation is 2.96m & Median is 2.75m an increase over`11 • The usual range of valuation for an pre- commercialized company 1 to 3 mil • A Convertible Debenture (last weeks lunch and learn) is a way to take the valuation discussion off the table
  • 8. www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels INVESTOR EXPECTATIONS • At the end of the day valuations are subjective • Many VC`s will not discuss investment until a price is set • A high valuation may create an orphaned financing or even worse a future down round • Businesses are sold not bought, a business should be preparing for an exit from the start • A company needs to understand the potential buyers universe (Financial vs. Strategic buyers) and what they are looking for.
  • 9. www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels INVESTOR EXPECTATIONS • A USA with concerning terms will have negative pressure on valuation • Valuation is calculated on a Fully Diluted Basis – all options, warrants, convertible debentures, vesting, etc. are converted for the purposes of presenting the `Capitalization Table` referred to as `Cap Table` • Valuation is caveat emptor – buyer beware. More investors have lost more money because they overpaid for a stock than has been lost due to fraud. (Warren Buffett and Benjamin Graham = Value Investing) • Concentrated sales is negative for valuation • Bootstrapping and obtaining traction will assist a company build valuation
  • 10. www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels PRE-COMMERCIALIZATION METHODS 1. Venture Capital Method (ARI) 2. Scorecard Method (David Berkus) 3. Risk Factor Method (ARI) 4. The Shamrock Method (Buckley)
  • 11. www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels VENTURE CAPITAL METHOD
  • 12. www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels SCORECARD METHOD Management - quality team in place, except sales Opportunity - appears to be a huge opportunity Product – disruptive technology, prototype done Sales – team not in place , channels unclear Competition – many small players, lack technology Other Factors – foreign Market, partners
  • 13. www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels RISK FACTOR METHOD • Stage of the business • Legislation/Political risk • Manufacturing risk • Sales and marketing risk • Funding/capital raising risk • Competition risk • Technology risk • Litigation risk • International risk • Reputation risk • Potential lucrative exit
  • 14. www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels SHAMROCK METHOD • Credit for Actual Invested Capital (no sweat equity) • Up to 250K for Management Team • Up to 250K for Proof of Concept or Product Validation • Up to 250K for Disruptiveness of Technology & Patents • Up to 250K for Business Model, pricing, etc. • Up to 250K for other including advisors, governance, financials, company infrastructure, etc. • Up to 250k for go to market strategy, traction, growth… • Credit for 2 years of revenue run rate up to 3 years
  • 15. www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
  • 16. www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels CONTACT