The document provides an overview of investment readiness and valuation for startups. It discusses key concepts such as understanding market opportunities, financial projections, stages of funding, and common valuation methods. The goal is to help entrepreneurs prepare effectively to attract investors and secure funding by demonstrating an accurate valuation of their business based on its potential for growth and profitability. Key steps include understanding what investors consider important, assessing the financial health and moneymaking potential of the business, and learning from others who have successfully raised startup capital.

2. Blessing Ayemhere

3. “BE INVESTMENT READY”
VALUATION SIMPLIFIED

4. - What is Valuation
- What are investors looking for?
- Understand your Market (4Ps)
- What problem are you solving?
- Talk in PESTLE
- Know your Numbers
- Stages of Funding
- Knowing Your Options
- Banana Peels
- Let’s Talk (Q&A)

5. Things you must actively do to convert ideas into reality

6. THE ATTRACTION
Credit: https://techcrunch.com/2021/02/11/how-african-startups-raised-investments-in-2020/

7. WHY ARE THEY COMING TO AFRICA?
QUICK FACT:

8. Learn from those who have done it before. Don’t ever think you have
all the answers, just because it’s your idea. Ideation is distinctly
different than execution.

9. TYPE OF FUNDING ROUNDS

10. TYPE OF FUNDING ROUNDS

11. TYPE OF FUNDING ROUNDS

12. STARTUP FINANCING CYCLE

13. STARTUP FINANCING CYCLE

14. FUNDING SOURCE VS BUSINESS CYCLE
Credit: TMS Outsource

15. STAGES OF GROWTH

16. STARTUP FUNDING STAGES – WHAT YOU NEED TO KNOW

18. Investment Readiness
 “Investment readiness” is a well-known concept in
the investment field, and is traditionally defined as the capacity of
an enterprise to understand and meet the specific needs and
expectations of investors.
 Investment-readiness is essential as it is the bridge that provides the
financial and fundraising capability that investors and funders
expect from entrepreneurs, thereby significantly increasing the
chances of being funded. Entrepreneurs need to prepare before they
approach investors in order to master their options and gain
credibility.

20. Carrying out a valuation of your business is a great way
to examine the financial health and moneymaking
potential of your business. As well as this, there are
plenty of other benefits that come part and parcel with
valuing your business:
➢It helps put a concrete price tag on your business,
which is useful if you’re selling your business or
succession planning.
➢If you’re looking to secure additional funding for
your business, it can provide investors with a realistic
estimate of the value of your business.
➢It can give you a clearer overview of the financial
health of your business, which can help you to pinpoint
underperforming areas and focus on the approaches
that are working well.
➢If your staff want to buy or sell shares in your
business, valuing your business can help you set a fair
price.

21. Valuation Simplified
❖ Valuation is the process of determining the economic value of a business or
company – it reflects both past performance and expectations of future
performance.
❖ Why value your enterprise?
Entrepreneurs need to put a value on their business in order to raise finance or
equity. Investors need to put a value on the businesses to ensure adequate
return on investment.
What do investors expect to see from entrepreneurs?
❖ Investors are thinking in terms of risk, impact and return. The entrepreneur
needs to minimize the risks that investors could perceive regarding a
potential investment in the business, to present in detail and accurately the
impact and to describe the revenue potential by providing a track record
which is demonstrating that the entrepreneur understands the implications of
investment in their company.

22. Business
Risk
Cash flow
• Every business needs cash to operate. The business finance term and definition cash flow refers to the
amount of operating cash that “flows” through the business and affects the business’s liquidity.
Interest
rate
• All loans and other lending instruments are assigned the business finance key term interest rates. This is a
percentage of the principal amount charged by the lender for the use of its money. Interest rates represent
the current cost of borrowing.
Cost of
capital
• The cost of capital refers to the required return needed on a project or investment to make it
worthwhile.
Earnings
• Earnings are the profit that a company produces in a specific period, usually defined as a
quarter or a year. It is calculated by subtracting expenses, interest, and taxes from revenue.
Revenue
Understanding financial terms
Revenues are the receivables of a company, generally what’s paid by customers in
exchange for a company’s products or services . It is the income a company generates
before deducting expenses.
It’s any event or item — inside the company or outside in the world at large — that can affect sales, the cost
of sales, administrative or operating expenses, or at worst, innovation and growth. In other words, business
risk is anything that can lower the potential value of a company

23. • Book Value
• Adjusted Book Value
• Liquidation value
THE ASSET
APPROACH
• Price to revenue ratio
• Price to Earnings ratio
• Price to EBITDA
THE MARKET
APPROACH
• Discounted Cash Flow Method
• Weighted Cost Of Capital Method
THE INCOME
APPROACH

24.  The Asset Approacnsth
Also known as the Cost Approach,
the Asset valuation approach is
based on your finding the fair
market value of assets (the
easiest ones to value are
tangible assets) and deducting
the liabilities to determine the
net asset value or the net worth
of the business. Fair market
value is the amount that a
willing buyer would pay to a
willing seller in a free market for
any piece of property, including
a company.
 Here’s the formula for book
value, which in some circles is
called a business’s net worth:
Book Value = Total Assets – Total
Liabilities
Adjusted book value: This figure is
the book value amount after
assets and liabilities have been
adjusted to market value, which
involves comparing assets of
similar companies
Liquidation value: This calculation
is somewhat similar to the book
value calculation, except the
value assumes a forced or
orderly liquidation of assets
rather than book value.

25.  With the Market Approach,
you’re comparing your company
or a target company with other,
similar companies. You can use
comparisons to similar publicly
traded companies or to actual
sales transactions or similar
businesses.
 Price-to-revenue ratio: This is
expressed as the market price of the
business divided by the revenue.
Why use it: Even if a company hasn’t
posted a profit over the past year, it
always has revenue.
 Price-to-earnings ratio: The P/E ratio
is expressed as the market price of a
business divided by earnings.
Why use it: Earnings are the lifeblood of a
company — without earnings, it can’t
continue over a long period of time.
 Price to EBITDA: This ratio is
expressed as the company’s share
price divided by its earnings before
interest, taxes, depreciation, and
amortization.
Why use it: Using EBITDA improves
comparability among businesses
because it removes expenses that are or
may be somewhat subjective.

26.  The Income Approach
The Income Approach is probably the most common and appropriate valuation
approach in most cases. Essentially, you’re trying to analyze the future
economic benefits you’re anticipating from a business — better known as
income — into a single amount in today’s naira, the term also known as present
value.

27.  Discounted cash flow (DCF) is
a valuation method used to
estimate the value of an
investment based on its
expected future cash
flows. DCF analysis attempts to
figure out the value of an
investment today, based on
projections of how much money
it will generate in the future.
 DCF= CF1 + CF2 + CFn
1+r 1+r 1+r
where:
CF=The cash flow for the given year.
CF1​ is for year one,
CF2​ is for year two,
CFn is for additional years
r=The discount rate​
 Weighted Average Cost of
Capital
This method can help a company
calculate the cost of raising money.
The calculation involves multiplying
the cost of each element of capital,
such as debt (loans and bonds) and
equity (common stock and preferred
stock) by its percentage of the total
capital and then adding them
together. The final figure, the
weighted average cost of capital
(WACC), is a rough guide to the rate
of “required return” per monetary
unit of capital.
WACC = [Ke + Kd(D/E)] ÷ [1 + (D/E)]
where Ke is the desired return on
equity,
Kd is the desired return on debt,
and D/E is the debt/equity ratio.

28. • Future Cash flow of the business
• Company fundamentals
• All about the business
Intrinsic Value
method
• Value of similar businesses
Relative Value
method
• Contingent upon a happening – e.g an
oil and gas reserves
Applied option
model

29. Quantitative Valuation
methodology
Start-up
valuation
methods
Future
Valuation
Multiple
Approach
Berkus
Approach
Market
Multiple
Approach
Risk Factor
Summation
Approach
Cost-to-
Duplicate
Approach
Discounted
Cash Flow
Approach
The Cost-to-Duplicate
Approach involves taking
into account all costs and
expenses associated with
the startup and the
development of its
product, including the
purchase of its physical
assets. All such expenses
are taken into account in
order to determine the
startup’s fair market value
based on all the expenses.
The Discounted Cash Flow
(DCF) Method focuses on
projecting the startup’s
future cash flow
movements
The Risk Factor Summation
Approach values a startup by
taking into quantitative
consideration all risks
associated with the business
that can affect the return on
investment
Recent acquisitions on
the market of a similar
nature to the startup in
question are taken into
consideration, and a
base multiple is
determined based on
the value of the recent
acquisitions.
The Future Valuation
Multiple Approach solely
focuses on estimating
the return on investment
that the investors can
expect in the near
future, say five to ten
years.
The Berkus Approach,
created by American
venture capitalist and
angel investor Dave
Berkus looks at valuing a
start-up enterprise based
on a detailed
assessment of five key
success factors: (1) Basic
value, (2) Technology, (3)
Execution, (4) Strategic
relationships in its core
market, and (5)
Production and
consequent sales.

30. Growth Strategy to create value

31. COMMON VALUATION METHODS
Andy an entrepreneur want to raise fund from a VC
Asking 1,000,000
Offering 20%
Value of company: = 1,000,000/20%
= 1,000,000/0.2
Estimated value = 5,000,000
Example 1.

32. COMMON VALUATION METHODS
Example 2.
% of Business
Multiplier
(1/percent)
Example for
N1,000,000
5% 20 20,000,000
10% 10 10,000,000
15% 6.7 6,666,667
20% 5 5,000,000
25% 4 4,000,000
33% 3 3,030,303
40% 2.5 2,500,000
Valuation (Shark Tank Maths)

33. SUCCESS STORIES

34. BE READY

35. BE READY - II

36. LOOK UP

37. CONCLUSION
- There is no “single” silver bullet – preparation is everything!
- Different investors are seeking different objectives (understand and
know what they are looking for)
- Hardwork, persistence
- Investors invest in you and not “necessarily your product”
- Work on something viable… don’t be afraid to share your ideas.
- Network!, Network!!, Network!!!

38. Thank You
@blessed_oba
blessing-ayemhere