Valuation 2010 Final
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Valuation 2010 Final

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Valuation 2010 Final Valuation 2010 Final Presentation Transcript

  • Valuation and forecasting
  • Before we start…
    3
    Exit Analysis – Nordic VCs
    Decreasing valuations
    8
    Financial Fundamentals
    Learning the income statement, balance sheet etc
    18
    Financial Performance
    Key ratios and actual performance vs. plans
    27
    Financial Planning
    Combine top-down and bottom-up approach and ensure link between plan and budget
    34
    Valuation
    Relative and absolute methods. DCF is an absolute method that discounts future cash flows
    48
    The VC Method
    He value of a company is a matter of discussion over a cup of coffee
    62
  • Before We Start…
    View slide
  • .. I need three volunteers?
    Before We Start…
    View slide
  • Tweet key learnings…
    Before We Start…
    MCF10
    Control10
    Password:
  • Give a hand to the tweeters!
    Before We Start…
  • Reminder - Assignment for every study group!
    Deadline - the lecture on Options
    Every study-group should find 10 tweets that:
    You find interesting / funny
    That can serve as a either a summary of the lectures or that explores an important topic
    Upload the Powerpoints at Slideshare and tweet the link in Twitter in MCF10 account
    Two groups will present – randomly chosen
    Before We Start
  • Exit Analysis – Nordic VCs
  • Trade sales are most common and the crises has reduced # exits and closed IPO window
    Exit Analysis – Nordic VCs
    Source: VentureXpert
  • As well as having reduced the values – IPOs are typically larger than trade sales
    Exit Analysis – Nordic VCs
    Source: VentureXpert
  • Decreasing exit value and increased general risk leads to lower valuation for early-stage
    Exit Analysis – Nordic VCs
    Source: VentureXpert
  • Know your value inflection points...
    Exit Analysis – Nordic VCs
    Market Share
    Exit Value
    Proof-of-scale
    Proof-of-business
    Proof-of-concept
    Capital Need
    Pre-venture
    Venture
  • Have the end in mind…
    Exit Analysis – Nordic VCs
    IPO
    Competitor
    Start-up
    Strategic Supplier
    Strategic Customer
    New entrant
  • Approach the exit differently
    Exit Analysis – Nordic VCs
    Business strategy to fit exit
    Trade Sale
    Identify buyers
    Position the company
    Create bid wars
    Asses timing – capital need and market
    Business strategy to fit exit
    Prepare organisation setup
    Create exposure
    IPO
  • US exits have higher values – for several reasons
    Exit Analysis – Nordic VCs
    Source: Vækstfonden
  • US VCs participate in the most attractive exits of Nordic companies
    Exit Analysis – Nordic VCs
    Vækstfonden
  • Why do you think that the exit values are higher for the Nordic companies who has a US VC investor on board?
    Exit Analysis – Nordic VCs
  • Financial Fundamentals
  • Standard P&L (Income Statement)
    Financial Fundamentals
  • Bill of Material – a nice reality check
    Financial Fundamentals
  • The Balance Sheet - Assets
    Financial Fundamentals
  • The Balance Sheet – Liabilities and Equity
    Financial Fundamentals
  • Cash Flow Statement
    Financial Fundamentals
  • Operational Breakeven
    Financial Fundamentals
    NOPAT
    EVA = Net Operating Profit AfterTaxes (NOPAT) – After-Tax Dollar Cost of Financial CapitalUsed
    Seperates a firm’s operating from itsfinancing
    NOPAT = EBIT-Tax
    NOPAT Breakevenrevenues (NR) = TOFC/(1-VCRR)
    TOFC = Total Operating FixedCost
    VCRR = Ratio of Variable cost to revenue
    EBDAT
    EBDAT = Earnings before Depriciation, amortization and taxes
    EBDAT Breakeven = Amount of revenues to cover cash OPERATING expenses
    Breakeven: EBDAT = 0
  • Real Break Even
    Financial Fundamentals
    Real Breakeven
    Whenthereexist Positive FreeCash Flow
    FCF = Net Income+ (Depriciation/Armortization) - ∆ WorkingCapital-CAPEX
    Cash Burn = OPEX + Interest+ Tax + IncreaseInventory- ∆ payables and accruedliabilities + CAPEX
    Cash Build = Net Sales – Increase in Recievables
    Net Cash Burn = Cash Burn – Cash Build
  • As an entrepreneur you must know
    Burn Rate: Avg. monthly cash burn
    Runway: Remaining liquidity / Burn Rate
    Financial Fundamentals
  • Financial Performance
  • Ratios – using common sense and industry benchmarks
    Financial Performance
  • The use of ratios relates to life cycle
    Financial Performance
    Maturity
    Public & Seasoned
    Rapid
    Growth
    B,C-round
    A-round
    Survival
    Startup Financing
    Startup
    Seed Financing
    Focus on cash & cost
    Broad Focus on ratios
    Focus on cash & profitability
  • I look at traction in Sales
    Financial Performance
  • and traction in healthy operations
    Financial Performance
  • … as well as CASH
    Financial Performance
  • Critical Success Factors
    Financial Performance
  • Financial Planning
  • The progress for successful venture
    Financial Planning
    Market Share
    Exit Value
    Proof-of-scale
    Proof-of-business
    Proof-of-concept
    Capital Need
    Pre-venture
    Venture
  • and the cash balance
    Financial Planning
    High
    Cash Balance
    Low
    Founder and FFF
    Seed
    Exit
    National Venture
    Int. Venture
  • Time fundraising with value inflection points and before cash balance is too low
    Market Share
    Exit Value
    Proof-of-scale
    Proof-of-business
    Proof-of-concept
    Capital Need
    Pre-venture
    Venture
    High
    Cash Balance
    Low
    Founder and FFF
    Seed
    National Venture
    Int. Venture
  • Tools for financial planning in a growth company
    Financial Planning
  • Key Problem – Missing link between business plan and financial plan
    Financial Planning
  • If my company is expecting to have this much revenue – then what is my plan to get there?
    Financial Planning
    If my plan is this – then what is the likely revenue, cost and capital requirement
  • How to workwith a business plan / budget /anything in life…
    Financial Planning
  • Top Down – starting with the potential
    Financial Planning
  • Buttom Up – Building it up from today
    Financial Planning
  • Financial Planning
    ...clarify to yourself and potential investors what the assumptions for the budgetare in relation to revenue drivers, cost drivers, investments etc.
    It is always better to make informed and reasonable assumptionsthan claiming it is difficult to predict the future
  • Think contingent scenarios
    Financial Planning
    • Best case
    • Base line
    • Worst Case
  • Financial Planning
    As well as usingWHAT IF? Scenarios onimportantparamerters – Revenue, Price, COGS, Funding...
  • Forecasting will become easier with maturity and lower risk
    Financial Planning
    Maturity
    Public & Seasoned
    Rapid
    Growth
    B,C-round
    A-round
    Survival
    Startup Financing
    Startup
    Seed Financing
    Low
    High
    Moderate
    Sales Forecasting Accuracy
  • Valuation
  • Four steps of valuation
    Valuation
  • Financial Planning
    Thismakesvaluation more ART than SCIENCE
  • Two valuation types
    Valuation
  • Valuation
    The relative and absolute methods
    Relative Valuation
    Absolute Valuation
    • Price / Earnings (P/E)
    • Price / Sales (P/S)
    • Price / Book (P/B)
    • EV / EBIT
    • EV / NOPAT
    • Discounted Cash Flow (DCF)
    • Economic Value Added (EVA)
    • Maximum Dividen Method
    • Options
  • Evaluating a company or a project
    Valuation
    Company
    Project
    • Price / Earnings (P/E)
    • Discounted Cash Flow (DCF)
    • Payback
    • Net Present Value (NPV)
  • In absolute valuation
    Valuation
    Value is to generate positive cash flows to the owner…
    ...and to calculate the present value of thosecash flow (DCF and NPC)
  • The principle of NPV
    Valuation
    Identify future cash flows
    Bring cash-flows to present valuewith discount rate thatreflects the risk of cash flows
  • The DCF valuation for firms (EV)
    Valuation
  • Generic DCF valuation
    Valuation
    AswathDamodaran
  • But which cash flows
    Valuation
  • Calculating the Free Cash Flow
    Valuation
    Free Cash Flow to Equity (FCFE) =Net Income
    - Net Capital Expenditure
    - ∆in Net Working Capital
    + New Debt
    - Debt Repayment
    Free Cash Flow to Firm (FCFF) = EBIT*(1-tax)
    Unleveredcash flow - CAPEX
    - Depreciation
    - ∆WorkingCapital
    or
    Free Cash Flow to Firm (FCFF)= FCFE + InterestExpenditure(1-t)
  • Valuing a firm – the discount factor
    Valuation
    WACC = Weighted Average Cost of Capital
    WACC = Cost of Equity * Equity ratio + Cost of Debt * Debt Ratio
    30Y State Bond
    4,5%
    Measure for how closely a stock follows the market
  • Valuing firms – Terminal value (two approaches)
    Valuation
    Terminal Value=FCFF n * (1+g)/ (r-g)
    Perpetuity Growth method
    FCFF = Free Cash Flow to the Firm
    n = periods
    r = WACC
    g = perpetual growth rate (often 1-3%)
    Multiple Terminal Value=EBITDA * Peer Multiple
    Exit multiple Method (1+WACC)n
    FCFF = Free Cash Flow to the Firm
    Peer Multiple = Enterprise Value (EV) / EBITDA for comparable company
    n= Periods
  • The VC Method
  • The VC Method = The Exit Multiple Method
    The VC Method
    Multiple Terminal Value=EBITDA * Peer Multiple
    Exit multiple Method (1+WACC)n
    FCFF = Free Cash Flow to the Firm
    Peer Multiple = Market Cap / EBITDA or Price / Sales for comparable companies
    n= Periods
  • We consider
    The VC Method
    ….. IRR, Return Multiple, AbsoluteReturn, Ownership under the different deal terms...
    … the case from an overall perspective (team, industry, technology, etc)...
    However most often the price of a companycomesdown to negotiation over a cup of coffee
  • The Summary
    Exit Analysis – Nordic VCs
    Decreasing valuations
    8
    Financial Fundamentals
    Learning the income statement, balance sheet etc
    18
    Financial Performance
    Key ratios and actual performance vs. plans
    27
    Financial Planning
    Combine top-down and bottom-up approach and ensure link between plan and budget
    34
    Valuation
    Relative and absolute methods. DCF is an absolute method that discounts future cash flows
    48
    The VC Method
    He value of a company is a matter of discussion over a cup of coffee
    62