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Startup Valuation for Angel Investors

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The Startup Equity Valuation Timeline
Angel Investment & Valuation
Angel Funding: The Valuation “Triangle”
Three Valuation Methods
VC Valuation Approach: Industry Standard Discount Rates
Comparables Valuation Approach: Median/Mean Round Size
Comparables Valuation Approach: Pre-Money Valuation
Range
Angel Valuation Considerations
The Dave McClure Five “Million Dollar Point” Approach*

Published in: Business, Economy & Finance
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Startup Valuation for Angel Investors

  1. 1. June 18, 2014 Efrat Kasznik, Founder & President Foresight Valuation Group, LLC Startup Valuation for Angel Investors
  2. 2. 2Foresight Valuation Group © 2014 About Me: Efrat Kasznik  Founder and President, Foresight Valuation Group, a Silicon-Valley based Intellectual property (IP) valuation, strategy and start-up advisory firm.  Valuation and strategy expert, with 20 years of experience analyzing IP portfolios across industries  Lecturer, Stanford Graduate School of Business  Chair, Cloud Committee, Licensing Executives Society (LES)  Top IP strategists, IAM 300 List 2013-2014  Co-founder, CFO and Advisor to startups and incubators in the US and Europe, including: Stanford Venture Lab, The HUB Trieste, Astia Angel Fund
  3. 3. 3Foresight Valuation Group © 2014 The Startup Equity Valuation Timeline Seed Funding Stock Options Series A, B, C M&A IPO Available Information Low High
  4. 4. 4Foresight Valuation Group © 2014 Angel Investment & Valuation Angel Invest? Priced Not Priced Convertibl e Note No Fit Preferred Stock How to Invest ?
  5. 5. 5Foresight Valuation Group © 2014 Angel Funding: The Valuation “Triangle” Funds Raised ($) Ownership (%) Valuation ($) < $1M 20%-40%$2.5M
  6. 6. 6Foresight Valuation Group © 2014 Angel Valuation Case Study: Floome Smartphone Breathalyzer Customers Production FulfillmentFinancials Team
  7. 7. 7Foresight Valuation Group © 2014 Three Valuation Methods  VC Valuation Approach  Adjusted Comparable Valuation Approach  Heuristic Approaches (experience based)  Example - Dave McClure’s 5 Points
  8. 8. 8Foresight Valuation Group © 2014 $20 Million $100 Million $5 Million $2.5 Million 5X Exit Multiple 70-80% Discount Rate = 20x ROI Revenu e in Year 5 Value in Year 5 VC Valuation Approach: At Exit Point (Year 5) Value Today 50% future dilution Fully Diluted Value Today
  9. 9. 9Foresight Valuation Group © 2014 VC Valuation Approach: Industry Standard Discount Rates • 80%+Seed • 50-70%Angel • 40-60%Series A • 30-50%Series B • 25-35%Bridge Sources: How Venture Capital Works , Harvard Business Review A Method for Valuing High-Risk Long-Term Investments, Harvard Business School
  10. 10. 10Foresight Valuation Group © 2014 Comparables Valuation Approach: Median/Mean Round Size Source: Halo Report 2013
  11. 11. 11Foresight Valuation Group © 2014 Comparables Valuation Approach: Pre-Money Valuation Range Source: Halo Report 2013
  12. 12. 12Foresight Valuation Group © 2014 Angel Valuation Considerations Benchmark s Company Metrics Your Investme nt Objective s External Factors • Market Size • Partnerships • Regulation • Litigation • Funding & Exits • Comparables • Future Trends • Target ROI • Exit Horizon • Team • Product • Execution (Beta) • IP portfolio
  13. 13. 13Foresight Valuation Group © 2014 The Dave McClure Five “Million Dollar Point” Approach*  Revealed by Dave McClure (500 Startups) at a TechCrunch Disrupt Event (2011)  Each “point” worth $1M: 1. Market 2. Product 3. Team 4. Customers 5. Revenue >> Maximum: $5 Million  * Efrat’s 6th point: IP (patents)>> add another $1M
  14. 14. 14Foresight Valuation Group © 2014 Angel Valuation Resources  Angel Resource Institute www.angelresourceinstitute.org  Fenwick & WestSeed Financing Survey 2012 of Internet/Digital Media and Software Industries  Silicon Valley Bank: The HALO Report 2013  Center for Venture Research https://paulcollege.unh.edu/cvr
  15. 15. THANK YOU! Presentation available upon request Efrat Kasznik President, Foresight Valuation Group ekasznik@foresightvaluation.co m 650-561-3374 http://www.linkedin.com/in/ekasz nik

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