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S
“ Venture Valuation: a Reality
Check”
Experience.
Governance - Financial Management - Strategy
Integrity. Trust.
2
Real World
Gerard Buckley
Experience and Expertise
S Founder & CEO of Jaguar Capital an Advisory Practice for
Growth Com...
S Introduction
S Fair Market Value
S Revenue Companies
S Business Valuations
S Investor Expectations
S Pre-Commercializati...
Valuation - Agreement of
Price to Buy and Sell
4
The Valuation of a company is the price to buy the entire company whether it is
public or private often quoted in the pric...
FMV - Fair Market Value
``The price, expressed in terms of cash equivalents, at which property
would change hands between ...
Revenue Companies
1. Multiple of EBITDA 5. Book Value
2. Discounted Cash Flow 6. Market Value
3. Comparable transaction me...
Business Valuations
S Every valuation and Pricing is unique
S In a M&A Transaction price or valuation
comes down to the st...
Investor Expectations
S , as a M&A buyer paid < 20 mil with <20 people for 90 % of it`s
targets
S An Angel Investor has tr...
Valuation – How Subjective is
it?
10
S Ready to make some money
S I will auction off $10 to the highest bidder
S Three rules:
S Bid increments must be in amoun...
Investor Expectations
S At the end of the day valuations are subjective
S Many VC`s will not discuss investment until a pr...
Investors Expectations
S Valuation is calculated on a Fully Diluted Basis – all options, warrants,
convertible debentures,...
S “Valuation metrics in some sectors do
appear substantially stretched –
particularly those for small firms in the
social ...
S When you are offering equity to employees
S When you are trying to raise equity financing
S When you are trying to sell ...
Pre-Commercialization
Methods
16
1. Venture Capital Method (ARI)
2. Scorecard Method (Bill Payne)
3. Risk Factor Method (A...
Venture Capital Method
17
Scorecard Method
18
Management - quality team in place, except sales
Opportunity - appears to be a huge opportunity
Produc...
Risk Factor Method
19
S Stage of the business
S Legislation/Political risk
S Manufacturing risk
S Sales and marketing risk...
Shamrock Method
“A David Berkus Hybrid”
20
S Credit for Actual Invested Capital (no sweat equity)
S Up to 450K for Disrupt...
s is what they base their Valuation on
21
How to Build a Billion Dollar Company:
The Method Behind Today’s Unicorn
Madness...
S 237 Investments in 2014 totaling $90.5 m, an increase from 2013 of 199
investments and a increase in investment from 89....
S Median Angel Round Size $800K in ’14 up
from $600k in 2013. Mean Angel Round
Size $1.64m in 2014 up from $1m in 2013
S P...
s is what they base their Valuation on
S This is what investors base their valuation on:
S High anticipated growth rate
S ...
1. National Angel Capital Organization 2014 Report on Angel Investing Activity in Canada.
2. Angel Resource Institute – Ha...
“1/3 of all SME’s in Canada had
problems accessing additional
financing, let Jaguar Capital
help you attain the financing
...
Gerard Buckley, BBA, FICB, CMC, ICD.D, Acc. Dir.
Managing Director
Jaguar Capital Inc.
(C) 416-884-9522
(W) 416-645-6695
g...
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Venture valuation a reality check

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A presentation on valuation being given to Action Conference 2015 today. http://www.actionconference.com/

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Venture valuation a reality check

  1. 1. S “ Venture Valuation: a Reality Check” Experience. Governance - Financial Management - Strategy Integrity. Trust.
  2. 2. 2 Real World Gerard Buckley Experience and Expertise S Founder & CEO of Jaguar Capital an Advisory Practice for Growth Companies in Governance, Financial Management & Strategy S Past - Chairperson of Board of Directors, Maple Leaf Angels Corporation & founder and Lead Director for Maple Leaf Angels Capital Corporation, the General Partner of MLA48LP1 a Pre-Seed Angel Fund. S Certified Corporate Director of the Institute of Corporate Directors S Previously Entrepreneur in Residence with Incubes S Past member of Small & Medium Enterprise Committee of The Ontario Securities Commission S Investment Committee of Mount Saint Vincent University, Halifax, NS S 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.
  3. 3. S Introduction S Fair Market Value S Revenue Companies S Business Valuations S Investor Expectations S Pre-Commercialization S Q & A AGENDA 3
  4. 4. Valuation - Agreement of Price to Buy and Sell 4
  5. 5. The Valuation of a company is the price to buy the entire company whether it is public or private often quoted in the price of a share. For a private company you need to know the total value usually stated as Pre- Money Valuation before investment or Market Capitalization (post money valuation) after investment. 5 Introduction
  6. 6. FMV - Fair Market Value ``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.`` 6
  7. 7. Revenue Companies 1. Multiple of EBITDA 5. Book Value 2. Discounted Cash Flow 6. Market Value 3. Comparable transaction method 7. Liquidation Value: Forced or Orderly 4. Total Enterprise Value 7
  8. 8. Business Valuations S Every valuation and Pricing is unique S 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 S 43% of Canadian business owners who are within 10 years of retirement and have no transition plans S 65% of business owners don’t know what their company is worth S 75% of their worth is tied up in their business 8
  9. 9. Investor Expectations S , as a M&A buyer paid < 20 mil with <20 people for 90 % of it`s targets S An Angel Investor has traditionally expected a return of 10X on invested capital S Valuations for tech start-ups have been increasing in recent years while the stock market decreases in valuation S According to CB Insights; between 2012 and 2014, the capital efficiency ratio for 1b exits for VC backed US tech exits has been cut in half, dropping from 22x to 9x. S The capital efficiency of exits in the $500m - $1b range fell by 46% to 7.5x S Exits in the $100m to $500m range also saw a decrease, although the trend9
  10. 10. Valuation – How Subjective is it? 10
  11. 11. S Ready to make some money S I will auction off $10 to the highest bidder S Three rules: S Bid increments must be in amounts of $1 S You must have cash in your pocket to bid S While the highest bidder obtains the $10, the second highest bidder must pay a penalty equal to his or her last bid. The penalty payment will go to Action 2015. 11 Valuation Exercise Valuations are as much an art as a science
  12. 12. Investor Expectations S At the end of the day valuations are subjective S Many VC`s will not discuss investment until a price is set S Many VC’s will try to neutralize valuation through terms and conditions such a liquidity preference. S A high valuation may create an orphaned financing or even worse a future down round S Businesses are sold not bought, a business should be preparing for an exit from the start 12
  13. 13. Investors Expectations S 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` S 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) S Has the founder bootstrapped the company to a sustainable level S Are you raising enough money to last you 18 to 24 months? 13
  14. 14. S “Valuation metrics in some sectors do appear substantially stretched – particularly those for small firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year.” Janet Yellen, Federal Reserve Board Chair in her report to congress on the state of monetary policy – July 2014 14 Are Current Valuations Sustainable?
  15. 15. S When you are offering equity to employees S When you are trying to raise equity financing S When you are trying to sell the business 15 When does a Pre-Revenue Company Need a Valuation
  16. 16. Pre-Commercialization Methods 16 1. Venture Capital Method (ARI) 2. Scorecard Method (Bill Payne) 3. Risk Factor Method (ARI) 4. The Shamrock Method (David Berkus Hybrid) 5. Strategic value based on assumptions of acquisition 6. Comparable companies with similar forecasted profit
  17. 17. Venture Capital Method 17
  18. 18. Scorecard Method 18 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
  19. 19. Risk Factor Method 19 S Stage of the business S Legislation/Political risk S Manufacturing risk S Sales and marketing risk S Funding/capital raising risk S Competition risk S Technology risk S Litigation risk S International risk S Reputation risk S Potential lucrative exit
  20. 20. Shamrock Method “A David Berkus Hybrid” 20 S Credit for Actual Invested Capital (no sweat equity) S Up to 450K for Disruptiveness of Technology & Patents S Up to 450K for Proof of Concept or Product Validation S Up to 450K for Business Model, pricing, etc. S Up to 450k for go to market strategy, traction, growth… S Up to 450K for Management Team S Up to 450K for other including advisors, governance, financials, company infrastructure, etc. S Credit for 2 years of revenue run rate up to 3 years
  21. 21. s is what they base their Valuation on 21 How to Build a Billion Dollar Company: The Method Behind Today’s Unicorn Madness Discussed in an article by Adeo Ressi of Founder Institute and published on Forbes.com
  22. 22. S 237 Investments in 2014 totaling $90.5 m, an increase from 2013 of 199 investments and a increase in investment from 89.0 m S Average investment is $1,229k up fr $945k 2013 from over 1700 investors down from 2100 in 2013 S Investments in $ 89% - Ont & Que, 10% West, 1% Atlantic S ICT (42%), Life Sciences (41%), Clean Tech (3%) S Valuation – Median $4.0m, Mean 5.6m S 61% of transactions involved a co-investor S Of 2972 applications in Canada 7.9% get funded by networks 22 Canadian Angel Investment Group Activity - 2014
  23. 23. S Median Angel Round Size $800K in ’14 up from $600k in 2013. Mean Angel Round Size $1.64m in 2014 up from $1m in 2013 S Pre-Money Valuations continue to climb at $3M in 2014 up 20% from 2013; however, top valuations increased from $9.3M to $13.5M S 72% of deals occur in angel groups’ home states S 73% of Angel Deals are Syndicated or Co- Invested S Median Round Size $2M in ‘14 from $1.8M in 2013 when co-invested S Share of Deals by Sector - Internet 34.6%(- ), Healthcare 18.3%(+), Mobile & Telecom 15.3%(-), Software (non-Internet/mobile) 4.2%(-) 23 Angel Resource Institute – Halo Report -2014
  24. 24. s is what they base their Valuation on S This is what investors base their valuation on: S High anticipated growth rate S Experienced management team S Sustainable competitive advantage S Barriers to entry S Clear strategy for commercialization S Proof of concept or enterprise level validation S Business model anchored in Reality S Traction (sales or user) S Investor exit strategy 24 In Summary: WHAT INVESTORS LOOK FOR
  25. 25. 1. National Angel Capital Organization 2014 Report on Angel Investing Activity in Canada. 2. Angel Resource Institute – Halo Report – Angel Group Update: 2014 3. Valuing Pre-Revenue Companies by Andrew Maxwell RIC Centre c CIC- Canadian Innovation Centre 2011 4. How do Investors Value Pre-Revenue Companies? By Leo Polovets, Forbes Magazine – Dec 24, 2014 5. Entrepreneurs, here’s how to think about your valuation by Bernard Moon, Sparklabs Global Ventures – Venturebeat.com – Oct 5, 2014 6. The Berkus Method: Valuing an Early Stage Investment by David Berkus -The Berkonomics – Mar 27, 2012 7. Tech Start-ups: Take the Money and build by Howard Tullman – Money Magazine 8. 2012 Valuation Survey of Angel Groups by Bill Payne 9. Valuation of Early Stage Companies, Presented by: Angel Resource Institute, October 24, 2010 10. Goodbye Capital Efficiency: Tech Start-ups are raising more, and exiting for less. CB Insights Blog July 14, 2015 11. Why aspiring to achieve unicorn status could be dangerous for startups by Anwar Ali published in Financial Post November 17, 2015 12. How to Build a Billion Dollar Company: The Method behind Today’s Unicorn Madness by Adeo Ressi Published in Forbes.com Nov 20, 2015 25 References
  26. 26. “1/3 of all SME’s in Canada had problems accessing additional financing, let Jaguar Capital help you attain the financing you deserve” – Gerard Buckley 26
  27. 27. Gerard Buckley, BBA, FICB, CMC, ICD.D, Acc. Dir. Managing Director Jaguar Capital Inc. (C) 416-884-9522 (W) 416-645-6695 g.buckley@jaguarcapital.ca www.jaguarcapital.ca @jaguarcapital @gerardbuckley 27 JAGUAR CAPITAL TEAM

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