Slideshare uses cookies to improve functionality and performance, and to provide you with relevant advertising. If you continue browsing the site, you agree to the use of cookies on this website. See our User Agreement and Privacy Policy.

Slideshare uses cookies to improve functionality and performance, and to provide you with relevant advertising. If you continue browsing the site, you agree to the use of cookies on this website. See our Privacy Policy and User Agreement for details.

Successfully reported this slideshow.

Like this presentation? Why not share!

1,701 views

Published on

How to calculate a good business deal?

Entrepreneurs vs Investor

Published in:
Business

No Downloads

Total views

1,701

On SlideShare

0

From Embeds

0

Number of Embeds

16

Shares

0

Downloads

0

Comments

0

Likes

1

No embeds

No notes for slide

- 1. How to calculate a good business deal Entrepreneur vs Investors
- 2. Seed Series A Series B M&A Cash out Value X RRC Cash needed $2M $7M $50M Valuation pre-money Valuation post-money $200 M Founders Inv. seed Inv. Series A Inv. Series B x1,5 9m + 3m x2,5 21m + 3m x2 24m 1. As a founders, we calculate the cash needed for the 5 next years before to be acquired $2M + $7M + $50M = $159M 2. Today on TechCrunch, a similar company is acquired by a big corporation for $200M 3. Times: From Seed to Series A: 9months + 3months (finalizing next deal) From Series A to Series B: 21months + 3months (finalizing next deal) From Series B to M&A: 24months 4. IRR “Internal Rate of Returns” for the investors will be: 1. Investor 1 x1,5 in 1year ≈ 80%* 2. Investor 2 x2,5 in 2years ≈ 60%* 3. Investor 3 x2 in 2years ≈ 41%* *Look at the RRC table
- 3. Seed Series A Series B M&A Cash out Value X RRC Cash needed $2M $7M $50M Valuation pre-money Valuation post-money $100M $200 M Founders Inv. seed Inv. Series A Inv. Series B PREM&A = $200M $200M / 2 = $100M x1,5 9m + 3m x2,5 21m + 3m X2 24m
- 4. Seed Series A Series B M&A Cash out Value X RRC Cash needed $2M $7M $50M Valuation pre-money $50M Valuation post-money $20M $100M $200 M Founders Inv. seed Inv. Series A Inv. Series B PREM&A = $200M $200M / 2 = $100M PREB = $100M - $50M = $50M $50M / 2,5 = $20M x1,5 9m + 3m x2,5 21m + 3m X2 24m
- 5. Seed Series A Series B M&A Cash out Value X RRC Cash needed $2M $7M $50M Valuation pre-money $6,6M $13M $50M Valuation post-money $8,6M $20M $100M $200 M Founders Inv. seed Inv. Series A Inv. Series B PREM&A = $200M $200M / 2 = $100M PREB = $100M - $50M = $50M $50M / 2,5 = $20M PREA = $20M - $7M = $13M $13M / 1,5 = $8,6M PRESEED= $8,6M - $2M = $6,6M x1,5 9m + 3m x2,5 21m + 3m X2 24m
- 6. Seed Series A Series B M&A Cash out Value X RRC Cash needed $2M $7M $50M Valuation pre-money $6,6M $13M $50M Valuation post-money $8,6M $20M $100M $200 M Founders 76,8% Inv. seed 23,2% Inv. Series A Inv. Series B PREM&A = $200M $200M / 2 = $100M PREB = $100M - $50M = $50M $50M / 2,5 = $20M PREA = $20M - $7M = $13M $13M / 1,5 = $8,6M PRESEED= $8,6M - $2M = $6,6M Seed %F= $2M / $8,6M = 23,2% - 100% = %S = 76,8% x1,5 9m + 3m x2,5 21m + 3m X2 24m
- 7. Seed Series A Series B M&A Cash out Value X RRC Cash needed $2M $7M $50M Valuation pre-money $6,6M $13M $50M Valuation post-money $8,6M $20M $100M $200 M Founders 76,8% 49,92% Inv. seed 23,2% 15,8% Inv. Series A 35% Inv. Series B PREM&A = $200M $200M / 2 = $100M PREB = $100M - $50M = $50M $50M / 2,5 = $20M PREA = $20M - $7M = $13M $13M / 1,5 = $8,6M PRESEED= $8,6M - $2M = $6,6M Seed %F= $2M / $8,6M = 23,2% - 100% = %S = 76,8% Series A %A = $7M / $20M = 35% - 100% = %F+S = 65% %F= 65% * 76,8% = 49,92%; %S = 65% * 23,2% = 15,8% x1,5 9m + 3m x2,5 21m + 3m X2 24m
- 8. Seed Series A Series B M&A Cash out Value X RRC Cash needed $2M $7M $50M Valuation pre-money $6,6M $13M $50M Valuation post-money $8,6M $20M $100M $200 M Founders 76,8% 49,92% 24,96% Inv. seed 23,2% 15,8% 7,9% Inv. Series A 35% 17,5% Inv. Series B 50% PREM&A = $200M $200M / 2 = $100M PREB = $100M - $50M = $50M $50M / 2,5 = $20M PREA = $20M - $7M = $13M $13M / 1,5 = $8,6M PRESEED= $8,6M - $2M = $6,6M Seed %F= $2M / $8,6M = 23,2% - 100% = %S = 76,8% Series A %A = $7M / $20M = 35% - 100% = %F+S = 65% Series B %B = $50M / $100M = 50% - 100% = %F+S=A = 50% %F= 50% * 59,92% = 24,96%; %S = 50% * 15,8% = 7,9% %A= 50% * 35% = 17,5% x1,5 9m + 3m x2,5 21m + 3m X2 24m %F= 65% * 76,8% = 49,92%; %S = 65% * 23,2% = 15,8%
- 9. Seed Series A Series B M&A Cash out Value X RRC Cash needed $2M $7M $50M Valuation pre-money $6,6M $13M $50M Valuation post-money $8,6M $20M $100M $200 M Founders 76,8% 49,92% 24,96% $49,9M Inv. seed 23,2% 15,8% 7,9% $15,8M 7,9x 52% Inv. Series A 35% 17,5% $35M 5x 50% Inv. Series B 50% $100M 2x 41% PREM&A = $200M $200M / 2 = $100M PREB = $100M - $50M = $50M $50M / 2,5 = $20M PREA = $20M - $7M = $13M $13M / 1,5 = $8,6M PRESEED= $8,6M - $2M = $6,6M Seed %F= $2M / $8,6M = 23,2% - 100% = %S = 76,8% Series A %A = $7M / $20M = 35% - 100% = %F+S = 65% Series B %B = $50M / $100M = 50% - 100% = %F+S=A = 50% x1,5 9m + 3m x2,5 21m + 3m X2 24m %F= 65% * 76,8% = 49,92%; %S = 65% * 23,2% = 15,8% %F= 50% * 59,92% = 24,96%; %S = 50% * 15,8% = 7,9% %A= 50% * 35% = 17,5%
- 10. Seed Series A Series B M&A Cash out Value X RRC Cash needed $2M $7M $50M Valuation pre-money $6,6M $13M $50M Valuation post-money $8,6M $20M $100M $200 M Founders 76,8% 49,92% 24,96% $49,9M Inv. seed 23,2% 15,8% 7,9% $15,8M 7,9x 52% Inv. Series A 35% 17,5% $35M 5x 50% Inv. Series B 50% $100M 2x 41%PREM&A = $200M $200M / 2 = $100M PREB = $100M - $50M = $50M $50M / 2,5 = $20M PREA = $20M - $7M = $13M $13M / 1,5 = $8,6M PRESEED= $8,6M - $2M = $6,6M Seed %F= $2M / $8,6M = 23,2% - 100% = %S = 76,8% Series A %A = $7M / $20M = 35% - 100% = %F+S = 65% Series B %B = $50M / $100M = 50% - 100% = %F+S=A = 50% x1,5 9m + 3m x2,5 21m + 3m x2 24m Conclusion: This is a great deal! The proposal for the investors is: Seed Investor: for $2M you’ll return $15,8M in 5 years = IRR 52% 7,9x SeriesA Investor: for $7M you’ll return $35M in 4 years = IRR 50% 5x SeriesB Investor: for $50M you’ll return $100M in 2 years = IRR 41% 2x %F= 65% * 76,8% = 49,92%; %S = 65% * 23,2% = 15,8% %F= 50% * 59,92% = 24,96%; %S = 50% * 15,8% = 7,9% %A= 50% * 35% = 17,5%
- 11. Seed Series A Series B M&A Cash out Value X RRC Capital needed $2M $7M $50M Valuation pre-money $6,6M $13M $50M Valuation post-money $8,6M $20M $100M $200 M Founders 76,8% 49,92% 24,96% $49,9M Inv. seed 23,2% 15,8% 7,9% $15,8M 7,9x 52% Inv. Series A 35% 17,5% $35M 5x 50% Inv. Series B 50% $100M 2x 41% x1,5 9m + 3m x2,5 21m + 3m x2 24m • Now you are a Seed investor trying to figure out you shares % in each series: • You can invest $2M and expected return will be $12M in 5 years. • What’ll be your % share en each round? • M&A: $12M / $2M = x6 ≈ you will expect 43%* • The expected value at M&A will be $300M -> $12M / $300M = I need to have 4% at the M&A • I assume that my dilution at Series B will be 50%: Shares at the M&A 4% / .50 = I need to have 8% before the Series B • I assume that my dilution at Series A will be 35%: Shares at the M&A 8% / .35 = I need to have 23% before the Series A Conclusion: If you have 23% at the initial round for $2M you’ll receive $12M in 5 years. Deal!!
- 12. Hope you enjoy it! @BerkeleyExecEd If you have any question do not hesitate to contact me: @RicardGarriga

No public clipboards found for this slide

Be the first to comment