Valuation of Pre-Commercialized Companies

VA L U AT I O N o f
P R E - C O M M E R C I A L I Z E D C O M PA N I E S

AGENDA
INTRODUCTION
FAIR MARKET VALUE
REVENUE COMPANIES
BUSINESS VALUATIONS
INVESTOR EXPECTATIONS
PRE-COMMERCIALIZATION

www.mapleleafangels.com

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M L A C O N N EC T S

Our mandate is to connect experienced accredited investors, and the brightest, most
passionate entrepreneurs in an effective investment process.


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Who Am I
• I am Gerard Buckley
– Founder & CEO of Jaguar Capital an Advisory Practice for Growth
Companies in Governance, Financial Management & Financial Structuring
– Chairperson of Board of Directors, Maple Leaf Angels Corporation &
Investor in eight early stage companies
– Certified Corporate Director of the Institute of Corporate Directors
– Previously Entrepreneur in Residence with Incubes (An Internet Company
Accelerator)
– Member of Small & Medium Enterprise Committee of The Ontario
Securities Commission
– Investment Committee of MSV University, Halifax, NS
– 32 yr. Career with Scotia Capital as a Financial Risk Management Advisor to
Fortune 200 Companies: Rogers, Irving Group, Empire Co., Four Seasons,
Bruce Power, OPG, Province of Ontario, Ford etc.


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4

VA L U AT I O N
AGREEMENT OF
PRICE TO BUY AND SELL


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INTRODUCTION
The Valuation of a company is the price to buy the entire company whether it
is public or private. It is usually quoted in the price of a share; however, for a
private company you need to know the total value usually stated as PreMoney Valuation before investment and Post- Money Valuation or Market
Capitalization after investment.


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F M V- FA I R M A R K E T VA L U E
``The price, expressed in terms of cash equivalents, at which property would
change hands between a hypothetical willing and able buyer and a
hypothetical willing and able seller, acting at arms length in a open and
unrestricted market, when neither is under compulsion to buy or sell and
when both have reasonable knowledge of the relevant facts.``


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R E V E N U E C O M PA N I E S
1.
2.
3.
4.
5.
6.
7.

Multiple of EBITDA
Discounted Cash Flow
Comparable transaction method
Book Value
Total Enterprise Value
Market Value
Liquidation Value: Forced or Orderly


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B U S I N E S S VA L U AT I O N S
• Every valuation and Pricing is unique
• In a M&A Transaction price or valuation
comes down to the strategic value the
acquirer brings to the transaction & the
portion paid to the target
• 65% of business owners don’t know what
their company is worth

• 85% have no exit strategy
• 75% of their worth is tied up in their
business


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VA L U AT I O N – P R E - C O M M E R C I A L I Z AT I O N


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I N V E S TO R E X P E C TAT I O N S
•

, the most active M&A buyer paid < 20 mil with <20 people for 90 %
of it`s targets

• An Angel Investor has an expectation of 10X
• Survey conducted among USA angel groups by Bill Payne in 2012. Average
Pre-Money valuation is 2.96m & Median is 2.75m an increase over`11
• The usual range of valuation for an pre- commercialized company 1 to 3 mil
• A Convertible Debenture (last weeks lunch and learn) is a way to take the
valuation discussion off the table


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VA L U AT I O N –
HOW SUBJECTIVE IS IT?


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• At the end of the day valuations are subjective
• Many VC`s will not discuss investment until a price is set
• A high valuation may create an orphaned financing or even worse a future
down round
• Businesses are sold not bought, a business should be preparing for an exit
from the start
• A company needs to understand the potential buyers universe (Financial vs.
Strategic buyers) and what they are looking for.


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• A USA with concerning terms will have negative pressure on valuation
• Valuation is calculated on a Fully Diluted Basis – all options, warrants,
convertible debentures, vesting, etc. are converted for the purposes of
presenting the `Capitalization Table` referred to as `Cap Table`
• Valuation is caveat emptor – buyer beware. More investors have lost more
money because they overpaid for a stock than has been lost due to fraud.
(Warren Buffett and Benjamin Graham = Value Investing)
• Concentrated sales is negative for valuation
• Bootstrapping and obtaining traction will assist a company build valuation


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416.646.6235 |

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P R E - C O M M E R C I A L I Z AT I O N M E T H O D S
1. Venture Capital Method (ARI)
2. Scorecard Method (David Berkus)
3. Risk Factor Method (ARI)
4. The Shamrock Method (Buckley)


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V E N T U R E C A P I TA L M E T H O D


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SCORECARD METHOD

Management - quality team in place, except sales

Opportunity - appears to be a huge opportunity
Product – disruptive technology, prototype done
Sales – team not in place , channels unclear

Competition – many small players, lack technology
Other Factors – foreign Market, partners


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416.646.6235 |

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R I S K FA C TO R M E T H O D

•
•
•
•
•
•
•
•
•
•
•

Stage of the business
Legislation/Political risk
Manufacturing risk
Sales and marketing risk
Funding/capital raising risk
Competition risk
Technology risk
Litigation risk
International risk
Reputation risk
Potential lucrative exit


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416.646.6235 |

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SHAMROCK METHOD
• Credit for Actual Invested Capital (no sweat equity)
• Up to 250K for Management Team
• Up to 250K for Proof of Concept or Product Validation

• Up to 250K for Disruptiveness of Technology & Patents
• Up to 250K for Business Model, pricing, etc.
• Up to 250K for other including advisors, governance, financials,
company infrastructure, etc.
• Up to 250k for go to market strategy, traction, growth…
• Credit for 2 years of revenue run rate up to 3 years


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Contact Information
Gerard Buckley, BBA, FICB, ICD.D
President and CEO
Jaguar Capital Inc.
(C) 416-884-9522
(W) 416-646-6789
g.buckley@jaguarcapital.ca
www.jaguarcapital.ca
Twitter: @jaguarcapital
Twitter: @gerardbuckley
Slideshare: Jaguar Capital


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20

THANK YOU
M L A S P O N S O RS & G OV E R N M E N T PA RT N E RS


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C O N TA C T

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Valuation of Pre-Commercialized Companies

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