Avoid The High Valuation Trap To Bcit Nov 09 Beta Draft

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  • Confidential - Here’s how our phases relate to financing and revenue - We have completed the design phase including the business logic and a comprehensive technical feasibility. - We are raising $3 million to build out an Alpha version that can generate revenue, host stored value accounts, showcase inter-device transactions, provide scalable content acquisition, offer third party affiliate tools and hook into popular social networks A Series A financing will follow for the launch and scaling phase
  • Avoid The High Valuation Trap To Bcit Nov 09 Beta Draft

    1. 1. Entrepreneurship & Strategy Class
    2. 2. My Bio <ul><li>Entrepreneur – 3 meaningful startups </li></ul><ul><li>Corporate Finance – negotiated over 100 transactions, CIBC Investment Banking </li></ul><ul><li>Boards </li></ul><ul><ul><li>Chair of a pre-revenue start-up </li></ul></ul><ul><ul><li>Founding director of MetroBridge, recent IPO </li></ul></ul><ul><ul><li>Director of award-winning local VC, BCAF </li></ul></ul>
    3. 3. About Stirling Mercantile Divestitures M&A Advisory Expansion Capital Fairness Opinions Early-Stage Finance FAIRNESS OPINIONS Director comfort & legal protection from independent, expert valuation EXPANSION CAPITAL Multiple industry experience Seasoned corporate financiers EARLY-STAGE FINANCING Full-service approach throughout process Aligned interests likely to secure funding DIVESTITURES Corporate financier involvement can improve price, simplify process M&A ADVISORY Sage advice in times of need or growth opportunity .
    4. 4. About Stirling Mercantile Divestitures M&A Advisory Expansion Capital Fairness Opinions Early-Stage Finance FAIRNESS OPINIONS Director comfort & legal protection from independent, expert valuation EXPANSION CAPITAL Multiple industry experience Seasoned corporate financiers EARLY-STAGE FINANCING Full-service approach throughout process Aligned interests likely to secure funding DIVESTITURES Corporate financier involvement can improve price, simplify process . M&A ADVISORY Sage advice in times of need or growth opportunity
    5. 5. Experience
    6. 7. www.stirlingmercantile.com
    7. 11. Diverse Portfolio - Successful Exits 7 Technology IRR 342% 23x Cash 5x Cash 3x Cash Life Science
    8. 12. Perspectives Advisor Investor Exit Transactions . Founder
    9. 13. Funding Road Map Confidential F, F & E Seed, Angel Series A Series B Year 1 2 3 4 5 Early Adopters Crossing the Chasm Mainstream Growth Develop Scale Expand Phases Funding Roadmap Investor Exit Revenue today Launch .
    10. 14. What happens when you bring in equity investors? <ul><li>Dilution </li></ul><ul><li>More governance and oversight </li></ul><ul><li>Additional management </li></ul><ul><li>Capital to accelerate development </li></ul><ul><li>Access to broader network </li></ul><ul><li>Added business insight </li></ul>Background .
    11. 15. What Do VCs Need? <ul><li>Strong team, with integrity </li></ul><ul><li>Clear, lucrative and sustainable value proposition </li></ul><ul><li>Large market opportunity and the ability to scale into it </li></ul><ul><li>Realistic valuation and deal terms </li></ul>.
    12. 16. What Do VCs Want? <ul><li>Traction from the target market </li></ul><ul><li>2 or 3 independent board candidates </li></ul><ul><li>Appropriate deal size for their fund </li></ul><ul><li>Appropriate market sector for their fund </li></ul><ul><li>Transaction ready due diligence binder/site </li></ul><ul><li>Close proximity </li></ul>.
    13. 17. What Should You Look For in a VC? <ul><li>More than money </li></ul><ul><li>Strong team, with integrity </li></ul><ul><li>“Been there, done that” management </li></ul><ul><li>Exit strategies </li></ul>.
    14. 18. What Should You Look For in a VC? <ul><li>More than money </li></ul><ul><li>Contacts </li></ul><ul><ul><li>for additional management </li></ul></ul><ul><ul><li>for customers </li></ul></ul><ul><ul><li>for partnerships </li></ul></ul>.
    15. 19. Why VCs Need ‘Home Runs’ <ul><li>40% return on a fund, which lasts about 7 to 10 years </li></ul>
    16. 20. One in Ten <ul><li>Some make a break-even or make a modest gain. Others die. </li></ul>$40m $100m
    17. 21. Objectives
    18. 22. Murphy’s Law
    19. 23. High Valuation Trap <ul><li>Problem: </li></ul><ul><li>Follow-on investors value lower than last </li></ul><ul><li>Forced to “cram down” last investors or no deal </li></ul><ul><li>Solution: </li></ul><ul><li>Understand downstream valuations </li></ul>.
    20. 24. Valuation <ul><li>Consider the post $ cap table for the next round </li></ul><ul><li>And subsequent rounds to the exit </li></ul>.
    21. 25. Exit Valuations <ul><li>Multiple of </li></ul><ul><ul><li>Revenue (eg. $10m x 2 = $20m) </li></ul></ul><ul><ul><li>Profit or EBITDA (eg. $3m x 6 = $18m) </li></ul></ul><ul><li>Discounted Cash Flow (can be lame) </li></ul><ul><li>All are better when company is growing </li></ul><ul><ul><li>(Importance of timing) </li></ul></ul>.
    22. 26. Relative Valuations <ul><li>Big Co </li></ul><ul><li>Experienced management, board </li></ul><ul><li>Large revenues </li></ul><ul><li>Diversified customer base </li></ul><ul><li>Scaled Infrastructure </li></ul><ul><li>Worth 3 x Revenues </li></ul><ul><li>Small Co </li></ul><ul><li>Great founder, some holes on team </li></ul><ul><li>Small growing revenues </li></ul><ul><li>Concentrated customer base </li></ul><ul><li>Scalable infrastructure </li></ul><ul><li>Worth 1.5 x Revenues </li></ul>.
    23. 27. Deal Drivers <ul><li>Accretive acquisitions </li></ul><ul><ul><li>You must add to buyer’s valuation </li></ul></ul><ul><ul><li>For example: </li></ul></ul><ul><ul><ul><li>Buyer: $100m Revenues x 3 = $300m market cap </li></ul></ul></ul><ul><ul><ul><li>Buys $10m Revenues x 1.5 = $15m </li></ul></ul></ul><ul><ul><ul><li>Adds $10m x 3 to valuation or $30m </li></ul></ul></ul><ul><ul><ul><ul><li>Accretive value is 2x cost </li></ul></ul></ul></ul>.
    24. 28. Deal Drivers <ul><li>Strategic </li></ul><ul><ul><li>Add value to other products or assets </li></ul></ul><ul><ul><li>Adds customers </li></ul></ul><ul><ul><li>Keep away from competitors </li></ul></ul><ul><ul><li>Product or geographic expansion </li></ul></ul>.
    25. 29. Marketing the Exit <ul><li>Plan the exit from the outset </li></ul><ul><li>Get to know your potential buyers early </li></ul><ul><li>Get to know your service providers early </li></ul>.
    26. 30. Think Like A Buyer <ul><li>Strategic </li></ul><ul><ul><li>Market share, keep away from competitor </li></ul></ul><ul><li>Financial </li></ul><ul><ul><li>Earnings, valuation multiples, accretive value to a stock price </li></ul></ul><ul><li>Entrepreneur </li></ul><ul><ul><li>Lifestyle </li></ul></ul>.
    27. 31. Think Like A Buyer <ul><li>Spend money to… </li></ul><ul><li>… make money, or </li></ul><ul><li>… save money </li></ul>.
    28. 32. Reading <ul><li>Fred Wilson www.avc.com </li></ul><ul><li>Brad Feld www.feld.com </li></ul><ul><li>Chris Dixon www.cdixon.org </li></ul><ul><li>Mark Suster www.bothsidesofthetable.com </li></ul><ul><li>Legal www.startupcompanylawyer.com </li></ul><ul><li>Bootup Labs http://blog.bootuplabs.com/ </li></ul><ul><li>News www.techcrunch.com </li></ul>.
    29. 33. Thank you <ul><li>A copy of this presentation is available at: </li></ul><ul><li>www.stirlingmercantile.com/ speakers.htm </li></ul>[email_address] [email_address] davidshore

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