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How to Increase Your Startup Valuation

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If you set meaningful milestones and consistently hit them, your valuation will increase.

But how?

In this presentation from Lighter Capital (www.lightercapital.com) and Early Growth Financial Services (www.earlygrowthfinancialservices.com) you'll learn how to increase your valuation through a strategic milestone financing approach.

Topics include:
- Identifying the metrics that matter for your business.
- Setting a realistic timeline that will reassure investors
- Examples of milestones that matter
- How to effectively demonstrate traction to investors

Published in: Business

How to Increase Your Startup Valuation

  1. 1. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 p1 Increase the Valuation of Your Startup #StartupValuation
  2. 2. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 p2 Molly Otter Chief Investment Officer Lighter Capital +10 years as a lender working as a generalist across all segments of the capital structure. Today’s Presenters David Ehrenberg Chief Executive Officer Early Growth Financial Services +10 years experience in helping early-stage companies with accounting, finance, tax, valuation services.
  3. 3. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 › Mission: make fundraising process more efficient utilizing technology and alternative structures › Funded +70 tech companies: Most active revenue-based finance lender in the country › $50K-$1M in growth capital › Entrepreneur-aligned structure About Lighter Capital
  4. 4. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 4 “Startups face a huge burden in today’s economy, often having to choose between funneling resources toward creating their goods and services or managing the often complex accounting, tax and financial strategy planning necessary to run a successful business.” ~ David Ehrenberg, Founder and CEO Early Growth Financial Services
  5. 5. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 Today’sAgenda Why is valuation important in startup land Different types of valuation The components that go into startup valuation How to effectively demonstrate traction to investors Examples of milestones that matter p5
  6. 6. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 p6 Why is valuation important for startups? 1. What % of equity can you give up in exchange for cash? 2. How much can you extract from your company in the long run? 3. How do you attract talent and investors? 4. Where do you stand in your industry?
  7. 7. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 7 Business valuation 409A valuation Startup valuation What does “valuation” mean?
  8. 8. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 Business valuations = company price Calculations based on: › Cash flows (current and projected) › Value of physical and intangible assets › Existence of readily identifiable potential strategic buyers › Market sentiment 8
  9. 9. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 409A valuations = value of business’ common stock (utilized for issuing stock options) › IRS requires Fair Market Value (FMV) analysis in conjunction with stock option grants › If you are acquired by a public company, a Big Four accounting firm is likely to audit your approach to IRS compliance › Reports are generally valid for 12 months – even if there’s been no financing activity, you’ll still need a new valuation annually
  10. 10. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 What impacts a company’s 409A valuation? › Company milestones › IP › Industry’s competitive dynamics › Strategic partnerships › Your investor base › Quality of management team
  11. 11. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 Startup valuations = what someone is willing to pay 11
  12. 12. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 12 As measured by market growth rate Opportunity size
  13. 13. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 Comparables 13  Based on recent financings or exits  Look for companies that are similar to you: . Stage Progress Size Team Composition
  14. 14. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 14 Market sentiment  How hot the space is at any given moment  What the competition looks like
  15. 15. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 Team 15 › Who’s on the team › Advisors? Board of Directors? › Team members’ domain expertise › Track record › Reputation › History of prior success
  16. 16. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 Traction › Growth numbers › Measured as anything that shows that you are picking up speed…adoption of your product/offering 16
  17. 17. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 p17 Demonstrating traction Revenue User Adoption Traffic Churn Brand
  18. 18. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 p18 Don’t’ forget about the cash burn! › Burn is a very important ingredient in showing traction › Anyone can show traction if they have unlimited funds! › Be able to justify your burn with your growth rate At Lighter Capital, we have a hard rule about lending companies with burn
  19. 19. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 p19 How to create and hit your milestones › Investors will want to know “how?” › Create budget and work backwards to set milestones › Show thought / accounting behind your milestone projections, e.g. › In the past, when I’ve added a sales headcount, I’ve been able to get X more customers a month. So if I hire X more, I can expect a X% growth in customers.
  20. 20. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 p20 Growth milestones › Examples: › Reach breakeven in 6 months › Acquire 3 new Fortune 500 company customers in Q2 › Release a product extension by September 1, 2015 › Double revenue year-over-year Milestones should be quantifiable and associated with a timeline.
  21. 21. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 p21 When milestones backfire… › Your past performance and projection don’t add up › You don’t know your numbers › You don’t have a plan to reach those milestones
  22. 22. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 p22 › Every time you raise should be after you’ve successfully completed a step function › Know how much you need to raise to reach the next step
  23. 23. LIGHTER CAPITAL WEBINAR © COPYRIGHT 2015 Q&A Visit Our Website www.lightercapital.com Apply Online www.lightercapital.com/apply See If You Qualify www.lightercapital.com/how-it- works/see-if-you-qualify Visit Our Website www.egfs.co Contact Us 415-234-3437 Follow Us @EarlyGrowthFS

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