When Valuation Doesn’t MatterLee HowerBoston Angel Boot Camp (June 2010)<br />
VALUATION ALWAYS MATTERS IF…<br />Investing in mid-late stage startups<br />2<br />CONFIDENTIAL - DO NOT DISTRIBUTE<br />
VALUATION ALWAYS MATTERS IF…<br />Investing in very small number of startups (n<5)<br />3<br />CONFIDENTIAL - DO NOT DISTR...
So when does it NOT matter?<br />4<br />CONFIDENTIAL - DO NOT DISTRIBUTE<br />
If investing in portfolio (n>10) of seed / early stage startups <br />5<br />CONFIDENTIAL - DO NOT DISTRIBUTE<br />
… doesn’t matter as much as most people think<br />6<br />CONFIDENTIAL - DO NOT DISTRIBUTE<br />
7<br />CONFIDENTIAL - DO NOT DISTRIBUTE<br />EXAMPLE 1: CAPITAL EFFICIENT WIN<br /><ul><li>Acme Corp seeks $1M round from ...
Angels “bid” is $2M pre-money
Acme Corp founders’ “ask” is $4M pre-money</li></li></ul><li>8<br />CONFIDENTIAL - DO NOT DISTRIBUTE<br />EXAMPLE 1: CAPIT...
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</li></li></ul><li>9<br />CONFIDENTIAL - DO NOT DISTRIBUTE<br />EXAMPLE 1: CAPITAL EFFI...
10<br />CONFIDENTIAL - DO NOT DISTRIBUTE<br />EXAMPLE 2:  DOWNSIDE<br />Worst case scenario… lose all your invested capita...
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Lee Hower - June 2010

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Lee Hower - June 2010

  1. 1. When Valuation Doesn’t MatterLee HowerBoston Angel Boot Camp (June 2010)<br />
  2. 2. VALUATION ALWAYS MATTERS IF…<br />Investing in mid-late stage startups<br />2<br />CONFIDENTIAL - DO NOT DISTRIBUTE<br />
  3. 3. VALUATION ALWAYS MATTERS IF…<br />Investing in very small number of startups (n<5)<br />3<br />CONFIDENTIAL - DO NOT DISTRIBUTE<br />
  4. 4. So when does it NOT matter?<br />4<br />CONFIDENTIAL - DO NOT DISTRIBUTE<br />
  5. 5. If investing in portfolio (n>10) of seed / early stage startups <br />5<br />CONFIDENTIAL - DO NOT DISTRIBUTE<br />
  6. 6. … doesn’t matter as much as most people think<br />6<br />CONFIDENTIAL - DO NOT DISTRIBUTE<br />
  7. 7. 7<br />CONFIDENTIAL - DO NOT DISTRIBUTE<br />EXAMPLE 1: CAPITAL EFFICIENT WIN<br /><ul><li>Acme Corp seeks $1M round from angel investors
  8. 8. Angels “bid” is $2M pre-money
  9. 9. Acme Corp founders’ “ask” is $4M pre-money</li></li></ul><li>8<br />CONFIDENTIAL - DO NOT DISTRIBUTE<br />EXAMPLE 1: CAPITAL EFFICIENT WIN<br /><ul><li>Acme Corp closes $1M angel round
  10. 10. Gets acquired for $50M w/o raising additional capital
  11. 11. If angels paid $2M pre  >16x return
  12. 12. If angels paid $3M pre  >12x return
  13. 13. If angels paid $4M pre  10x return</li></li></ul><li>9<br />CONFIDENTIAL - DO NOT DISTRIBUTE<br />EXAMPLE 1: CAPITAL EFFICIENT WIN<br />Even if angels paid 50-100% higher valuation they still have a great return<br />
  14. 14. 10<br />CONFIDENTIAL - DO NOT DISTRIBUTE<br />EXAMPLE 2: DOWNSIDE<br />Worst case scenario… lose all your invested capital<br />
  15. 15. 11<br />CONFIDENTIAL - DO NOT DISTRIBUTE<br />EXAMPLE 2: DOWNSIDE<br />Recovering $0.80 vs $0.50 on $1.00 doesn’t yield successful portfolio<br />
  16. 16. 12<br />CONFIDENTIAL - DO NOT DISTRIBUTE<br />CAVEATS, EXCEPTIONS, DISCLAIMERS<br /><ul><li>Creating valuation “overhang” for future rounds
  17. 17. De-motivating / disenfranchising founders
  18. 18. Valuation isn’t the only economic term in an investment round
  19. 19. Indiscipline about valuation serves no one</li></li></ul><li>Ultimately there is no “right” answer for valuing an early-stage startup<br />13<br />CONFIDENTIAL - DO NOT DISTRIBUTE<br />
  20. 20. … and all things in life are negotiable<br />14<br />CONFIDENTIAL - DO NOT DISTRIBUTE<br />
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