An investor perspective on the thought process investors consider when investing in early stage start-ups

1. 1
AN INVESTOR
THINK LIKE
A PRESENTATION FOR START-UPS ON AN INVESTOR’S THOUGHT PROCESS

2. 2
WHAT ARE INVESTORS THINKING ABOUT
WHEN THEY WRITE A CHEQUE?

3. 3
Let’s use the Standard & Poor's S&P/ASX 300 Accumulation
Index
This is the benchmark represents the value of the S&P
price index with dividends re-invested over time.
Dividends paid are incorporated into the accumulation
index calculation on the ex-dividend date.
If you invested $100,000 in 2009; it would be worth
$254,940 in 2019.
Compound Growth Rate: 9.8% after Tax.
Company tax rate: @ 30%
Required Return: 14% before Tax
LET SET SOME REALISTIC EXPECTATIONS
Note this figure of
14% for later.
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
S&P 300 - Accumulation Index (2009 to 2019)
INVESTORS WILL USE SOME BENCHMARK TO EVALUATE IF THE RETURNS GENERATED FROM ANGEL INVESTING
JUSTIFY THE RISK.

4. 4
Return On Capital Employed (ROCE)
A good proxy for investment returns is to look at a companies Return on Capital Employed (ROCE).
ROCE measures the efficiency with which capital invested in the business is generating earnings.
ROCE should always be higher than the rate at which the company borrows, otherwise any increase in borrowing will
reduce shareholders' earnings.
Capital
Efficiency
Operating
Margin
EBIT
Revenue
Revenue
Capital Employed
ROCE %
EBIT
Capital Employed
Profitability Metric to measure the margin being
generated through pricing strategy and operating
efficiency.
Capital Efficiency evaluates how well a
company uses it’s capital to efficiently generate
revenue.

5. 5
HOW DO YOU VALUE A START-UP
02

6. 6
Understand the Funding Environment for Start-Ups
Pre-Seed Seed Start-up
Early
Expansion
Growth Later Stage
Founder, Family
& Friends
Accelerators
Venture Capital
Private Equity
Commercial
Banks
$100m
$50m
$25m
$10m
$5m
$1m
$.25m
$0.1m
Funding Stage
1x
2x
10x
15 x
30 x
Risk &
Exp.
Return
Deal
Size
Angel Investors

7. 7
Is valuing a start-up a science or an art ?
Valuing Start-ups, is partially a relative science, although not an exact one.
If you are seeking a definitive answer, there is none! For those of you that want to cut to the
summary of this presentation here it is:
The biggest determining factor underpinning a start-up's value are:
a) the degree of competition in the industry sector in which the start-up competes,
b) the balance (or imbalance) between demand and supply of money (Deal Flow),
c) the recency and size of comparative exits,
d) the willingness for an investor to pay a premium to get into a deal,
e) or the desperation of the entrepreneur to get the capital raise across the line.
7

8. 8
ALTERNATIVE INVESTMENTS OUTCOMES
03

9. 9
LET LOOK AT A SCENARIO WHERE $100K IS INVESTED IN EACH OF TEN START -UPS.
6 – Fail, No Returns
Funds Invested
$1,000,000 2 - Marginal Returns
Alternative investments outcomes
2 – Large Returns

10. 10
WHY IS ENSURING A CORRECT VALUATION SO IMPORTANT, IN THIS SCENARIO THE INVESTMENT RETURN OF 5X
ON THE SUCCESSFUL INVESTMENTS IS INSUFFICIENT TO COVER THE RISK. REMEMBER THE 14% BENCHMARK
RATE DISCUUSED EARLIER
No Return
Funds Invested
($1,000,000)
2x Return
5x Return
$0
$400,000
$1,000,000
Total Return $1,400,000IRR of 7.4%
Scenario 1 – Successful Investments Return 5x.

11. 11
WHY IS ENSURING A CORRECT VALUATION SO IMPORTANT - IN THIS SCENARIO THE INVESTMENT RETURN OF 10X
ON THE INVESTMENTS THAT SUCCEED IS ABOVE THE 14% BENCHMARK RATE DISCUUSED EARLIER
No Return
2x Return
10x Return
$0
$400,000
$2,000,000
Total Return $2,400,000IRR of 19.9%
Scenario 2 – Successful Investments Return 10x.
Funds Invested
($1,000,000)

12. 12
No Return
2x Return
15x Return
$0
$400,000
$3,000,000
Total Return $3,400,000IRR of 28.6%
Scenario 3 – Successful Investments Return 15x.
WHY IS ENSURING A CORRECT VALUATION SO IMPORTANT, - IN THIS SCENARIO THE INVESTMENT RETURN OF 15X
ON THE INVESTMENTS THAT SUCCEED IS ABOVE THE 14% BENCHMARK RATE AND ENCOURAGES FURTHER
INVESTMENT IN OTHER STARTUPS.
Funds Invested
($1,000,000)

13. 13
FIVE QUESTIONS All STARTUPS MUST ANSWER
04

14. 14
THE FIVE ISSUES THAT INVESTORS THINK ABOUT?
5 Questions?
1 IS THE PROBLEM REAL ?
(NOT FROM THE FOUNDERS PERSPECTIVE BUT VALIDATED BY CONSUMER OR MARKET INSIGHT)
2 HOW IS THIS PROBLEM IMPACTING USERS ?
(MANY PROBLEMS EXIST IN LIFE, BUT SOMETIMES WE JUST GET ON WITH IT)
3 WILL THEY PAY TO HAVE THE PROBLEM DISAPPEAR ?
(AND IN MANY CASES, WE ARE UNWILLING TO PAY FOR IT)
4 DOES THE TEAM HAVE THE CAPABILITY TO EXECUTE ?
(PAST EXPERIENCE AND INDUSTRY KNOWLEDGE)
5 IS YOUR VALUATION BASED ON SOUND VALUATION CRITERIA?
(AND A VALUATION THAT IS UNRELISTIC, WILL IMPACT THE INVESTMENT DECISION)

15. 15
Brian Cooke
Managing Director
@ Cooke Capital