1. Valuation: Where Art & Science Collide

2. Definitions:
• Stock Classes
– Common
– Preferred
• Warrants & option pools
• Seed Rounds
• Convertible notes: discounts & kickers
• Pre/Post

3. Fatal flaws pre-financing:
• Company structure
• No option pool
• No assignments in place
• No Due Diligence prep
• No market research on comps

4. Fatal flaws pre-financing: Company Structure
Options are not candy!
Changing your company structure takes time &
money. What you do on the front end impacts
your ability to close quickly & efficiently!

5. Fatal flaws pre-financing: Options - 1
Options are not candy!
Fill your pool on the
front end! No
investor wants to
suffer dilution before
you begin.

6. Fatal flaws pre-financing: Options - 2
Options are not candy!

7. Fatal flaws pre-financing: Assignments
Options are not candy!

8. Fatal flaws pre-financing: Due Diligence
Options are not candy!
There’s no time like the
present!
Planning ahead now
enables faster review and
stronger negotiations.

9. Fatal flaws pre-financing: Mythical Claims
Options are not candy!
There’s no time like the
present!
Planning ahead no enables
faster review and stronger
negotiations.
Unicorns
may
exist…
…but if
you’re
raising
capital,
you’re
not there
today.

10. Valuation Methodology that works
• It’s not about $ it’s about %
• It’s about mitigating risk
– Referencability
– Time to next round
– Scale
– TCR = total capital required
– Team
– Business model validation

11. #1 Rule most Investors Claim
• Companies don’t fail on technology, the fail on
execution!
• What can you do to improve your risk factor
here?

12. Where things get hairy…
• Getting a lead to price the round
• Shopping term sheets
• Focusing in on exit comps only
• Focusing in on ‘Uber’ round valuations
• Shortening your runway to <12 months
• Claiming CFB before you’re in market
• Claiming 1% market share before you’ve
validated your model

13. Math that works:
• Reverse engineering 3 year financials when
you’re in or near market entry
• Bottoms up approach focused on
known/justified accounts
• Value of pipeline
• Value of team
• Value of COMPORABLE competition (but be
careful – better to use adjacent field than your
next door neighbor!)

14. If Guidelines help:
• 20-25% ownership Seed Round-Series A
• 15% Ownership Series B
• 15% Series C
• 10% Series D
• 5%+ Series E and above

15. Are you Serious?!
Yes, 100-70% = 30?!
But remember…
• Option Pool refreshes
• Founders stock
• Double triggers

16. Today is great, but tomorrow is
unknown…
• Up rounds, down rounds, flat rounds – they
happen! Don’t focus too much on today’s $ as…

17. The only certainty:
$0 x 100% is ALWAYS $0