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?
    4
    CONFIDENTIAL - DO NOT DISTRIBUTE
  • If investing in portfolio (n>10) of seed / early stage startups
    5
    CONFIDENTIAL - DO NOT DISTRIBUTE
  • … doesn’t matter as much as most people think
    6
    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