Founders Drinks July 2014: The Art & Science of Valuation

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On 30 July 2014, George Mathew, Managing Partner at Futurebooks shared his take on the art and science of valuation for #startups. Sharing both tools used to determine the numbers as well as stories …

On 30 July 2014, George Mathew, Managing Partner at Futurebooks shared his take on the art and science of valuation for #startups. Sharing both tools used to determine the numbers as well as stories of how savvy founders determined their valuation, it was a mix of how to walk the talk and talk the walk.

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  • 1. Prepared for Founders Drinks,e27 As of July 2014 THE ART & SCIENCE OF VALUATION
  • 2. www.futurebooks.com LAUNCH YOUR BIG IDEA
  • 3. www.futurebooks.com Incorporation structuring , company secretary, work passes Bookkeeping, financial reports, company tax, ESOPs Internal audit, valuation WHAT DOES FUTUREBOOKS DO?
  • 4. www.futurebooks.com OKR Objective To explore company valuation in the Asian context Key Results 1. Early stage valuation – one methodology 2. Growth valuation – one methodology
  • 5. EARLY STAGE VALUATION
  • 6. www.futurebooks.com SCORECARD VALUATION METHODOLOGY Find relative comparatives from the same region AngelList is a good source Establish an average pre-money valuation Be conservative
  • 7. www.futurebooks.com SCORECARD VALUATION METHODOLOGY
  • 8. www.futurebooks.com SCORECARD VALUATION METHODOLOGY
  • 9. www.futurebooks.com SCORECARD VALUATION METHODOLOGY
  • 10. www.futurebooks.com SCORECARD VALUATION METHODOLOGY Source: Bill Payne and Gust.com COMPARISON FACTOR RANGE TARGET COMPANY FACTOR Strength of Entrepreneur and Team 30% max 125% 0.3750 Size of the Opportunity 25% max 150% 0.3750 Product/Technology 15% max 100% 0.1500 Competitive Environment 10% max 75% 0.0750 Marketing/Sales/Partnerships 10% max 80% 0.0800 Need for Additional Investment 5% max 100% 0.0500 Other factors (great early customer feedback) 5% max 100% 0.0500 Sum 1.0750
  • 11. www.futurebooks.com SCORECARD VALUATION METHODOLOGY AVERAGE PRE-MONEY VALUATION $3M X FACTOR 1.0750 = 3.225
  • 12. GROWTH VALUATION
  • 13. www.futurebooks.com GROWTH VALUATION Credit: Aswath Damodaran Stern School of Business, New York University
  • 14. www.futurebooks.com FIRM VALUE METHODOLOGY Cashflow forecasted Discount rate at between 30-60% depending on stage of company Net present value arrived at Terminal Value for years thereafter Firm Value = Net Present Value + Terminal Value (Assumes no debt)
  • 15. www.futurebooks.com FIRM VALUE METHODOLOGY Terminal Value = Final Projected Year Cash Flow * (1 + Long-Term Cash Flow Growth Rate) (Discount Rate – Long-Term Cash Flow Growth Rate)
  • 16. www.futurebooks.com FIRM VALUE METHODOLOGY 0.3 2014 2015 2016 2017 2018 Revenue 120,000 180,000 252,000 327,600 393,120 Growth Rate 1.5 1.4 1.3 1.2 Cashflow margin 0.6 0.6 0.6 0.6 0.6 Cashflow 72,000 108,000 151,200 196,560 235,872 Net Present Value $320,459 = NPV(0.3, Cashflows 2014-2018) Terminal Value 2,830,464 = [Cashflow 2018 * 1,2] / [0.3 – 0.2] Firm Value (EV) $3,150,923 = Net Present Value + Terminal Value
  • 17. www.futurebooks.com FIRM VALUE METHODOLOGY 0.6 2014 2015 2016 2017 2018 Revenue 120,000 180,000 252,000 327,600 393,120 Growth Rate 1.5 1.4 1.3 1.2 Cashflow margin 0.6 0.6 0.6 0.6 0.6 Cashflow 72,000 108,000 151,200 196,560 235,872 Net Present Value $176,589 = NPV(0.6, Cashflows 2014-2018) Terminal Value 707,616 = [Cashflow 2018 * 1,2] / [0.6 – 0.2] Firm Value (EV) $884,205 = Net Present Value + Terminal Value
  • 18. ART OF VALUATION
  • 19. www.futurebooks.com THINGS A LITTLE BIRD TOLD ME “Things a Little Bird Told Me: Confessions of the Creative Mind” by Biz Stone, the co-founder of Twitter
  • 20. www.futurebooks.com THINGS A LITTLE BIRD TOLD ME
  • 21. www.futurebooks.com THINGS A LITTLE BIRD TOLD ME
  • 22. www.futurebooks.com THINGS A LITTLE BIRD TOLD ME
  • 23. www.futurebooks.com THINGS A LITTLE BIRD TOLD ME
  • 24. www.futurebooks.com THINGS A LITTLE BIRD TOLD ME
  • 25. www.futurebooks.com LET’S TALK inquiry@futurebooks.com @futureb00ks
  • 26. www.futurebooks.com TERMS OF USE Restrictions on Use of Contents 1. Except as otherwise provided, the Contents of this Document shall not be reproduced, republished, uploaded, posted, transmitted or otherwise distributed in any way, without the prior permission of FUTUREBOOKS SINGAPORE PTE LTD. To use any parts of the Contents of this Document, the user must seek permission in writing, stating the c Contents for use; intent of use; manner of use; time frame of use and identity of the user. FUTUREBOOKS SINGAPORE PTE LTD reserves the right to refuse permission without declaring reason(s); and/or if information submitted by user is deemed insufficient. 2. You may view, download and print the Contents if: (a) the Contents are used for non-commercial or personal use only and will not be copied or posted on any network computer or broadcast in any media, and (b) no alterations, additions or modifications of the Contents are made in any way (c) due acknowledgement is given to “FUTUREBOOKS SINGAPORE PTE LTD” and citing the sources for the relevant data extracted. 3. Modification of any of the Contents or use of the Contents for any other purpose will be a violation of FUTUREBOOKS SINGAPORE PTE LTD ‘s copyright and other intellectual property rights. Graphics and images on this Document are protected by copyright and may not be reproduced or appropriated in any manner without written permission of FUTUREBOOKS SINGAPORE PTE LTD. 4. Any request to otherwise reproduce the Contents from this Web Site for publication or commercial use should be addressed to: info@futurebooks.com.sg. Disclaimer of Warranties and Liability 5. The Contents of this Document are provided on an “as is” basis without warranties of any kind. To the fullest extent permitted by law, FUTUREBOOKS SINGAPORE PTE LTD does not warrant and hereby disclaims any warranty: (a) as to the accuracy, correctness, reliability, timeliness, non-infringement, title, merchantability or fitness for any particular purpose of the Contents of this Document; (b) that the Contents available through this Document or any functions associated therewith will be uninterrupted or error-free, or that defects will be corrected or that this Document and the server is and will be free of all viruses and/or other harmful elements. 6. FUTUREBOOKS SINGAPORE PTE LTD shall also not be liable for any damage or loss of any kind caused as a result (direct or indirect) of the use of the Document, including but not limited to any damage or loss suffered as a result of reliance on the Contents contained in or available from the Document.