Lee Hower - June 2010
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Lee Hower - June 2010

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    Lee Hower - June 2010 Lee Hower - June 2010 Presentation Transcript

    • When Valuation Doesn’t MatterLee HowerBoston Angel Boot Camp (June 2010)
    • VALUATION ALWAYS MATTERS IF…
      Investing in mid-late stage startups
      2
      CONFIDENTIAL - DO NOT DISTRIBUTE
    • VALUATION ALWAYS MATTERS IF…
      Investing in very small number of startups (n<5)
      3
      CONFIDENTIAL - DO NOT DISTRIBUTE
    • So when does it NOT matter?
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      CONFIDENTIAL - DO NOT DISTRIBUTE
    • If investing in portfolio (n>10) of seed / early stage startups
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      CONFIDENTIAL - DO NOT DISTRIBUTE
    • … doesn’t matter as much as most people think
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      CONFIDENTIAL - DO NOT DISTRIBUTE
    • 7
      CONFIDENTIAL - DO NOT DISTRIBUTE
      EXAMPLE 1: CAPITAL EFFICIENT WIN
      • Acme Corp seeks $1M round from angel investors
      • Angels “bid” is $2M pre-money
      • Acme Corp founders’ “ask” is $4M pre-money
    • 8
      CONFIDENTIAL - DO NOT DISTRIBUTE
      EXAMPLE 1: CAPITAL EFFICIENT WIN
      • Acme Corp closes $1M angel round
      • Gets acquired for $50M w/o raising additional capital
      • If angels paid $2M pre  >16x return
      • If angels paid $3M pre  >12x return
      • If angels paid $4M pre  10x return
    • 9
      CONFIDENTIAL - DO NOT DISTRIBUTE
      EXAMPLE 1: CAPITAL EFFICIENT WIN
      Even if angels paid 50-100% higher valuation they still have a great return
    • 10
      CONFIDENTIAL - DO NOT DISTRIBUTE
      EXAMPLE 2: DOWNSIDE
      Worst case scenario… lose all your invested capital
    • 11
      CONFIDENTIAL - DO NOT DISTRIBUTE
      EXAMPLE 2: DOWNSIDE
      Recovering $0.80 vs $0.50 on $1.00 doesn’t yield successful portfolio
    • 12
      CONFIDENTIAL - DO NOT DISTRIBUTE
      CAVEATS, EXCEPTIONS, DISCLAIMERS
      • Creating valuation “overhang” for future rounds
      • De-motivating / disenfranchising founders
      • Valuation isn’t the only economic term in an investment round
      • Indiscipline about valuation serves no one
    • Ultimately there is no “right” answer for valuing an early-stage startup
      13
      CONFIDENTIAL - DO NOT DISTRIBUTE
    • … and all things in life are negotiable
      14
      CONFIDENTIAL - DO NOT DISTRIBUTE