How to Value a Technology Start-up By: Lorenzo T Geraci [email_address]

Types/Characteristics of IT Start-ups Decreasing Risk and Reward Continued customer satisfaction; Market share First mover; Market Share Market Share Becoming standard; Closing partners IMPORTANT CRITERIA TO SUCCESS High-moderate High/Moderate Very High Extremely high LONG TERM VALUE Linear-ish Hockey Stick Hockey Stick Sow, then hockey stick REVENUE GROWTH Depends Moderate Moderate to High Low EARLY CAPITAL REQ’D Rapid 12 to 24 months Less long Long TIME TO MARKET Low Medium High Huge INTELLECTUAL PROPERTY Consulting, payroll, outsourcers Software packages, PDA’s, PC’s Databases, routers, telecom networks O/S, Chip Design, Barcode EXAMPLES SERVICES APP’S & BOXES INFRASTRUCTURE CORE TECHNOLOGY

The Phases Clear #1 player Domestic and Worldwide Big Greed and ego DOMINANCE 1/3 to ½ of all new sales in target markets All VP’s, CFO, COO if necessary Growth to 100’s Excellent Management RAPID PENETRATION (60 MONTHS) Clear target market, Repeatability of business, real product, real customers CTO, VP’s Sales, Marketing, Finance, Engineering, CEO 20 to 50+ Savvy Management MODERATE PENETRATION (36 MONTHS) Customer approval, some revenue CTO, VP Eng, Dir’s of Sales, Finance, Marketing GM  CEO 5 to 20 100% dedication to customer satisfaction Cheerleading and endurance EARLY CUSTOMER DEPLOYMENTS (24 MONTHS) Working prototype, beta installations CTO and GM 1 to 10 Tight linkage between devel. & biz goals; Focus Excellent people EARLY DEVELOPMENT TO PROTO/BETA (12 MONTHS) MILESTONES MANAGEMENT HEADCOUNT NEEDS

100% dedication to customer satisfaction

Cheerleading and endurance

Tight linkage between devel. & biz goals;

Focus

Excellent people

Questions, Capital, Valuations Public Market iBanks Commercial Banks Et al. Corp. finance Complacency : with so much success can you continue being paranoid? Dominance $40M to $100M+ Corporate Investors Mezzanine Funds iBanks Leasing $0 to $100M Execution : can you grow fast enough without loosing control? Mezzanine and IPO Rapid Penetration $10M to $50M Early Stage Funds Later Stage Funds Corporate Investors Venture Leasing $5M to $15M Market timing : is the market happening fast enough (or too fast)? Execution : can we grow, develop, sell, manage, etc.? 2 nd and 3 rd Rounds Moderate Penetration $2M to $5M Angels Seed Funds Early Stage Funds $1M to $4M Technology : does it work in practice? Target market : is this the right first place? Timing : if a market, when does it start? 1 st Round Early Customer Deployment $100K to $1M FFF Angels Seed Funds < $1M usually <500K Technology : does it work at all? Market : in there a market? Timing : if a market, when does it start? SEED Early Development Proto/Beta Valuations (pre-money) SOURCES CAP REQ’D QUESTION TO ANSWER WITH CAPITAL

iBanks

Commercial Banks

Et al.

Corporate Investors

Mezzanine Funds

iBanks

Leasing

Early Stage Funds

Later Stage Funds

Corporate Investors

Venture Leasing

Angels

Seed Funds

Early Stage Funds

FFF

Angels

Seed Funds

Risks and Expectations 15% per year? Market perceptions impact stock price Fat, dumb and happy management Complacency : with so much success can you continue being paranoid? IPO 2x within 12 to 24 months Opportunity cost if enterprise develops slowly Risk of public markets closing or changing rules Execution : can you grow fast enough without loosing control? Mezzanine and IPO Series D, E, etc..” 5x to 10x total investment over 2 to 5 years Big opportunity cost if enterprise develops slowly Investment in marketing and sales yields no assets if done poorly Market timing : is the market happening fast enough (or too fast)? Execution : can we grow, develop, sell, manage, etc.? 2 nd and 3 rd Rounds “ Series B, C, D, etc..” 10x to 20x total investment over 5 to 7 years Risk that there is NO value High risk of total loss Huge opportunity cost id enterprise develops slowly Technology : does it work in practice? Target market : is this the right first place? Timing : if a market, when does it start? 1 st Round “ Series A” 20% to 50% more than Series A No “dry power” for more investment Risk that there is NO market, bad technology and NO value High risk of total loss Technology : does it work at all? Market : in there a market? Timing : if a market, when does it start? SEED Early Development Proto/Beta Expected Returns INVESTMENT RISKS BUSINESS RISKS

Market perceptions impact stock price

Fat, dumb and happy management

Opportunity cost if enterprise develops slowly

Risk of public markets closing or changing rules

Big opportunity cost if enterprise develops slowly

Investment in marketing and sales yields no assets if done poorly

Risk that there is NO value

High risk of total loss

Huge opportunity cost id enterprise develops slowly

No “dry power” for more investment

Risk that there is NO market, bad technology and NO value

High risk of total loss

Valuations The earlier the money, the riskier it is Be realistic – the less you have, the less it’s worth Pretend it’s your money that’s being invested Taking friends’ money is stressful – don’t promote to them (they’re betting on YOU) Seed money should make a BIG return Later Rounds If you really thing it’s a big idea, don’t sweat the percentage points on dilution – worry that the value of your stock keeps increasing Liquidity Valuation means nothing if it’s illiquid – think about how investors get their return By: Lorenzo T Geraci [email_address]

The earlier the money, the riskier it is

Be realistic – the less you have, the less it’s worth

Pretend it’s your money that’s being invested

Taking friends’ money is stressful – don’t promote to them (they’re betting on YOU)

Seed money should make a BIG return

Later Rounds

If you really thing it’s a big idea, don’t sweat the percentage points on dilution – worry that the value of your stock keeps increasing

Liquidity

Valuation means nothing if it’s illiquid – think about how investors get their return