Claude Florin, profile picture
Uploaded byClaude Florin
4,636 views

Venture2014 epfl financing

The document outlines the stages of startup financing, emphasizing the roles of business angels and venture capital in Switzerland. It discusses various funding sources and investment motivations, as well as methods for company valuation and the entrepreneurial risks involved. Overall, it provides insights into the funding landscape for startups and the expected returns for investors.

Embed presentation

Downloaded 119 times
Claude Florin, A3 Angels Financing in the startup phase www.venture.ch Commission for Technology and Innovation CTI V.2
Outline      Start Up Stages and Financing Requirements Business Angels and Venture Capital Company Valuation Equity Share, Dilution & Exiting Getting started www.venture.ch Commission for Technology and Innovation CTI
Start Up and Funding Stages Entrepreneurs and investors perspectives www.venture.ch Commission for Technology and Innovation CTI |2
Revenue / EBITDA Funding sources Grants Crowd funding BA network syndication Business Angels > CHF 50M/year in CH Banks Venture Capital > CHF 100M/year in CH Source: EBAN, BBAA NESTA-BBAA “Siding with the Angels”- 2009 www.venture.ch Commission for Technology and Innovation CTI
What Type is your Start-up ? CHF1 B CHF500M CHF100M Annual Sales CHF50M CHF10M CHF5M  Acquisition  Venture capital  Strategic partner  Business Angels  Grants  FFF CHF1M “Investable” business  Born to be big  Born to Flip  Driven to make a difference “Life-style” business  Work to feed the family  Work to live their passion  Social startups  Bootstrap  Self-funded Adapted from Newwork LLC www.venture.ch Commission for Technology and Innovation CTI 4
Funding stages and amounts Seed Startup Efficiency Pre-Seed 0.5M Banks Acquisition Venture capital Testing required 9000 6000 3000 50-150k 0 100k, 300k + 50-150k FFF www.venture.ch 10-50 M+ 0.5 – 10 M+ Grants Adapted from Neworks, LLC; VC funding $M 1M, 5M+ Angel Self-funded x % assets + y % A/R Special funds Strategic partner Bootstrap Investment (CHF) Alternative product 30-60% margins 10-50k Startup Genome, Silicon Valley investments Commission for Technology and Innovation CTI 5
Business Angels and Venture Capital www.venture.ch Commission for Technology and Innovation CTI |7
Early-stage investment motivation Institutional investors  VCs : return on investment to investors  Corporate VCs : strategic business development Business Angels :  Return on Investment is the metric  Staying involved (sense of usefulness)  Give back to community  Affection for entrepreneurs Includes altruistic motivations Source: Bill Payne www.venture.ch Commission for Technology and Innovation CTI |8
Early-stage investment in Switzerland (M CHF) 300.0 250.0 +40% 200.0 50M -50% 150.0 130M 100.0 50.0 0.0 2007 2008 VC start-up (growth) 2009 VC seed 2010 2011 Business Angels Source: EVCA/PEREP Analytics, conversion €=1.22 CHF / EBAN 2007-2008 / CTI for 2013, A3 Angels 2009-2012 www.venture.ch Commission for Technology and Innovation CTI 2012
Swiss Business Angels Networks and members Networks BA Investment per capita CHF / hab 15 10 5 0 > 300 investors >30-50 million CHF / year >40 funded startups / year Multi-disciplinary € M/ M Source : A3 Angels ; Nelson Gray, EBAN www.venture.ch # deals/ M Claude Florin claude@a3angels.ch Commission for Technology and Innovation CTI 10
Financing and entrepreunarial risks Survival rate US ~40% Survival rate EU ~40% US Bureau of Labor Statistics, TechStars, Y Combinator. Quoted by Mars data accelerator http://data.marsdd.com/accelerators-worth-the-hype/#sthash.cXov6K8B.dpuf www.venture.ch Commission for Technology and Innovation CTI
Investment portfolio model Portfolio Multiple Company 5-Year IRR Portfolio Multiple Company 5-Year IRR 1 0.0 0% 6 1.6 10% 2 0.0 0% 7 1.6 10% 3 0.0 0% 8 7.6 50% 4 1.3 5% 9 20.0 82% 5 1.3 5% 10 Unknown Unknown Return on Portfolio Investments (1-9) is 3.7X = 26% IRR over 5 Years Assuming survival rate of 60% and 1 big success – reality is often lower www.venture.ch Commission for Technology and Innovation CTI | 15
Internal rate of return (IRR) IRR % 1 2 3 4 5 6 7 1 Years 3 4 5 2 6 Multiple 7 Years 1 2 3 4 5 6 7 - - - - - 0% 1.00 1.00 1.00 1.00 1.00 1.00 1.00 100 41 26 19 15 12 10 5% 1.05 1.10 1.16 1.22 1.28 1.34 1.41 200 73 44 32 25 20 17 300 100 59 41 32 26 22 10% 1.10 1.21 1.33 1.46 1.61 1.77 1.95 400 124 71 50 38 31 26 15% 1.15 1.32 1.52 1.75 2.01 2.31 2.66 500 145 82 57 43 35 29 20% 1.20 1.44 1.73 2.07 2.49 2.99 3.58 600 165 91 63 48 38 32 25% 1.25 1.56 1.95 2.44 3.05 3.81 4.77 1.30 1.69 2.20 2.86 3.71 4.83 6.27 35% 1.35 1.82 2.46 3.32 4.48 6.05 8.17 40% 1.40 1.96 2.74 3.84 5.38 7.53 10.5 IRR % - 30% Multiple - .xls function = IRR(values, guess) e.g.: IRR(D1:D:60,0.3/12) monthly or annual compounding www.venture.ch Commission for Technology and Innovation CTI | 16
Understanding VCs Who are VCs?  Business managers and entrepreneurs turned fund managers; professional investors What do VCs do?  Invest “other peoples money”  Analyze hundreds of potential investments  Choose only a few per year  After investing, VCs become active in the venture – take seat on the Board of Directors – some take interim executive management positions – get involved in strategic planning or oversight www.venture.ch Commission for Technology and Innovation CTI
AT BE BG CH CY CZ DE DK EE EL ES FI FR HU IE IT LT LU LV MT NL PL PT RO SE SI SK UK 100.0 www.venture.ch Commission for Technology and Innovation CTI 1.3 0.0 5.2 15.4 0.0 4.3 3.0 0.4 0.0 103.2 84.8 55.9 63.8 56.3 300.0 273.9 354.7 400.0 50.3 8.7 0.0 69.9 65.3 130.0 200.0 0.0 0.1 29.5 60.7 0.1 million € 500.0 477.0 VC investments in seed and start-up M€ EU countries data; 2012 600.0 0.0 Source : EVCA | 19
VC + BA model today “Tougher times for VCs” CHF 100K Founders +FFF + Grants Start CHF <2M @ CHF 1-2M Business Angels + Loans >6 mo CHF 1-2M @ <CHF 5M VC + BAs 0.5-5X multiple CHF >2M @ >CHF 5M VC B >12 mo  Increased financing requirements  European VCs struggling to raise new funds  Stronger BA co-investment … Trade sale IPO >3 year >8 year  Decreasing exit valuations  Limited trade sale opportunities  Closed IPO markets  Longer cycles before exit Source : Diego Braguglia, CTI Start-UP, Angel Days 2012 www.venture.ch Commission for Technology and Innovation CTI
VC-funded exits : only few succeed 25’000 funded 6’400 exit 1:4 980 >€ 100M wins 1:26 35 >€1B winners 1:700 Other wins 23% Winners 77% € 290B exit value Source: Quilvest, 2000-2010 quoted by Jean-David Chamboredon, ISAI www.venture.ch Commission for Technology and Innovation CTI | 21
Company Valuation www.venture.ch Commission for Technology and Innovation CTI | 26
Valuation outline The background  Alignment of investors and founders  Different perspectives The numbers !!  Current early-stage financing trends  Business Angels methods for Seed valuation The Math ….  Comparables, Sales Multiple  Discounted Cash Flow  Product Assets, Replacement Value www.venture.ch Commission for Technology and Innovation CTI
The two perspectives  Align investors with entrepreneurs (drives the subsequent scalability of the business)  Roadmap and targets for investor  Provides incentives for entrepreneurs Motivation and control of Founders www.venture.ch Valuation based on experience and intuition Risk / reward of Business Investors Commission for Technology and Innovation CTI | 28
Capital payment Investor‘s return Dividends + capital „Venture Capital “ method „BA“ methods www.venture.ch Cash Outflow Cash Inflow Operating costs Operating revenues expenses earnings Customers Investor‘s expenses Company Investor Investor and Company views •Discounted cash-flow , •Multiples (comparables) Commission for Technology and Innovation CTI | 29
The Maths – Methods of Valuation Market data Market cap, similar in the market www.venture.ch VC methods, Business Angels empirical ratios Performance based Multiples financial indices EBIT, … Net assets, Commission for Technology and Innovation CTI Discounted Cash-Flow (DCF) | 30
Valuation trends Europe $ 2.6M USA $ 2.75  Switzerland average= $4.2 M  50% = $1.5 - $8 M  Business Angels :  Western EU average= $2.6 M  50% = $1.2 - $3.5 M – Median valuation = $2.75 M – Two-thirds $1.0 - $3.0 M – 50% = $1.5 - $3.6 M  VC median = $15M <1M 1M 2M 3M 4M 5M 6M 7M+ 1Q’12 1Q’12 1Q’12 1Q’12 1Q’13 Source : Bill Payne, Angel List, Halo report, www.venture.ch Commission for Technology and Innovation CTI | 33
Business Angels methods Bill Payne Worksheet Management team 0-30% 25-40% Size of opportunity 0-25% 20-30% Product & technology 0-15% 10-30% Sales channels 0-10% 5-20% Competitive advantage 0-10% 5-20% Size of this round 0 - 5% 0-5% Need for funding 0 - 5% 0-5% Don’t make product/technology 95% www.venture.ch Commission for Technology and Innovation CTI
BA Methods : worksheet 0-30% Strength of Management Team What is founder’s experience? Many years business experience Experience in this business sector Experience as a CEO Experience as a COO, CTO, CFO Experience as a product manager Experience only as a salesperson of technologist Straight out of school Is the founder willing to step aside, if necessary, for a Impact new CEO? deal killer Unwilling Difficult to convince 0 Neutral + Willing ++ Key part of the plan Impact Is the founder coachable? 0 Yes deal killer No Impact How complete is the management team? -Very incomplete (none identified) Somewhat incomplete 0 Good start + Rather complete team ++ A complete and experienced management team 0-15% Competitive Landscape Impact 0 + ++ +++ Impact -0 + ++ Impact -- Impact + ++ +++ ++ + -- + ++ 0-10% Impact -0 + +++ 0-10% Impact -0 ++ +++ 0-25% Size of the Opportunity - What size is the specific market for the company’s Impact product/service? deal killer <CHF50,000,000 0 CHF100,000,000 ++ >CHF500,000,000 Impact What is the potential for revenues in five years? <CHF30,000,000 0 CHF50,000,000 ++ >CHF100,000,000 www.venture.ch 0-10% Impact ++ + 0 What is the status of the IP (intellectual property)? Trade secrets only Core patents pending Core patents issued Complete patent estate What is the strength of competitors in this market? Very strong Strong Fragmented Weak Very weak How large are the barriers to entry? Very low Low 0 Modest High Very high Sales Channels What channels of sales are in place? Haven’t even considered Many possibilities identified Narrowed to one or two channels Initial channels verified Channels established Business Stage In what stage of business is the company? Only have a plan Writing code/in product development Product ready for customer evaluation Positive, verifiable customer acceptance by beta site Customer lined up Funding Required What amount of funding is required? CHF250,000 to CHF750,000 CHF750,000 to CHF1,500,000 CHF1,500,000 to CHF20,000,000 (depends on availability of VC capital in region) Commission for Technology and Innovation CTI
Business Angel methods Berkus Method Sound idea Prototype Quality mgt team Quality board Any roll-out, sales Value Range: www.venture.ch Meier Method CHF 0.5 Mio. + CHF 0.5 Mio. + CHF 1-2 M. + CHF 0.5 Mio. + CHF 0.5 Mio. CHF 1 - 6 Mio. 1 Manager 2 Managers Value Range: Commission for Technology and Innovation CTI CHF 1.5 Mio. + CHF 1.5 Mio. CHF 1.5 - 6 Mio.
Discounted cash flow (DCF) Discounted by capital costs Company Value = Sum of discounted FCF + discounted CV 0 1 2 3 CV Continuing Value 4 5∞ t Discount (WACC) CAPM Seed stage 70-100% 4-14% Start-up stage 50-70% 4-14% First stage 50-70% Second stage 35-50% Later stage 25-40% Stage Source: Patrick Frei & Benoît Leleux ; Jean-Pierre Vuilleumier, Angel Days www.venture.ch Commission for Technology and Innovation CTI | 43
DCF valuation issues  DCF is not a suitable method to value start-ups –Valuation >80%derived from Continuing Value –Cumulated FCF negative for planning period –Cost of capital hard to estimate (>40 %) –Discount rates too low ⇒ valuations too high  Helps analyze company’s value drivers Source : Jean-Pierre Vuilleumier, Angel Day 2013 www.venture.ch Commission for Technology and Innovation CTI | 44
Comparable ratios “multiples” P&L Turnover - material expenses - personnel expenses - other operating expenses = operative cash flow - Depreciation = result of operations Ratio Revenue EBITDA - Net interest paid = EBIT - Tax = annual surplus / annual loss  Valuation ≈ 1X revenue EBIT  Valuation ≈ 5X EBIT Net Income EBIT = earnings before interest, taxes, depreciation and amortization www.venture.ch Commission for Technology and Innovation CTI | 45
Comparable ratios Industry Biotechnology Communications Equipment Computer Hardware Consumer Electronics Consumer Finance Electronic Components Electronic Equipment and Instruments Health Care Technology Home Entertainment Software Integrated Telecommunication Services Internet Retail Internet Software and Services Semiconductor Equipment Semiconductors Systems Software Business software Application software Wireless Telecommunication Services EV/EBITDA* NA 5.33 4.91 3.44 42.67 3.70 5.62 5.51 4.17 5.17 13.73 8.03 4.65 6.31 6.27 EV/EBIT* NA 7.75 7.40 6.35 49.19 6.39 8.01 10.45 31.04 10.28 18.41 22.55 6.37 NA 8.90 EV/Revenue** 4 2.4 2.6 3 6.61 12.17 Source: Damodoran on-line (Europe * ), http://startupvaluation.com (USA **) www.venture.ch Commission for Technology and Innovation CTI | 46
Adjust valuation using “multiples” Today Actual Projected sales (earnings) What “multiple” would you buy these businesses? B A C F G time D E © 2004-2010 Neworks, LLC www.venture.ch Commission for Technology and Innovation CTI 47
Every method gives a different valuation  Often over estimates real value  Uncertain assumptions  Not applicable for growth companies  Simple– no negative numbers  Time value not considered  Just a high-level forecast 15% 6,135 4,048 2,766 1,926 1,351 EBIT-Multiple 35% 40% 45% 50% 55% annual growth of the residual value 8% 10% 4,850 5,144 3,351 3,517 2,359 2,458 1,675 1,737 1,190 1,230 turnover multip Multiples risk ratio Discounted Cash-Flow 0.5 1.0 1.5 2.0 2.5 year 2011 0 0 0 0 0 2012 250 500 750 1,000 1,250 5.0 6.0 7.0 8.0 9.0 year 2011 neg. neg. neg. neg. neg. 2012 neg. neg. neg. neg. neg. Source : A3 Angels www.venture.ch Commission for Technology and Innovation CTI 2013 2014 2015 1,000 2,500 5,000 2,000 5,000 10,000 3,000 7,500 15,000 4,000 10,000 20,000 5,000 12,500 25,000 2013 neg. neg. neg. neg. neg. 2014 2,500 3,000 3,500 4,000 4,500 2015 10,000 12,000 14,000 16,000 18,000 2016 10,000 20,000 30,000 40,000 50,000 2016 25,000 30,000 35,000 40,000 45,000
Need to adjust valuation for Debt Assets capital assets Liabilities Equity Equity market value (number of shares X share price) + working capital (assets) liquid assets www.venture.ch Debt working capital (liabilities) Net Debt (+ net interest bearing financial liabilities – liquid assets ) = Enterprise Value (adjusted market value) Commission for Technology and Innovation CTI | 49
Valuation: VC method Investor’s View (Venture Capital Method) IRR (Internal rate of return) Sum discounted CF = 0 Value 1 2 3 4 5 6 t  Define the target Internal Rate of Return (IRR)  Estimate capital requirement (FCF analysis)  Estimate time to exit (5-7 years)  Estimate exit value (transactions or multiples)   Backward calculation of the required share Source : Jean-Pierre Vuilleumier, Angel Days 2012 © CTI -Invest www.venture.ch Commission for Technology and Innovation CTI | 52
Venture Capital Method Method Specification of required IRR  Rate of return objective, e.g. 30%. or  Target multiple of the investment e.g. 7.5X Evaluation of exit  Time  Anticipated valuation at exit e.g. 25’000 Required share of equity Investment targeted return (7.5 X) 500 3,750 share of the Business Angels valuation in Seed financing round 15% 3,333 total proceeds at exit - return preference of VCs return at pro rata allocation return share of Business Angels Source : A3 Angels www.venture.ch Commission for Technology and Innovation CTI 27,500 2,500 25,000 3,750
On-line tools for startup comparison Equidam Equitynet Worthworm Source : http://www.equidam.com/ : https://www.equitynet.com/crowdfunding-tools/startup-valuation-calculator.aspx ; www.worthworm.com www.venture.ch Commission for Technology and Innovation CTI
Equity Share, Dilution & Exiting www.venture.ch Commission for Technology and Innovation CTI | 59
Definitions : pre / post money valuations Company stage Entrepreneur ownership Seed investor ownership for CHF 250K Pre-Seed 100% Seed A-round B-round 80% 64% 51% 20% 16% 13% 20% 16% A-round investor ownership for CHF 1M B-round investor ownership for CHF 3M 20% Pre-money valuation CHF 1M CHF 4M CHF 12M Post money valuation CHF 1.25M CHF 5M CHF 15M Entrepreneur value CHF 1M CHF 3.2M CHF 7.7M Dramatic increase in the value of the company and value of your share The relevant question is not “how much of the pie do I own?” rather “how big is the pie?” www.venture.ch Commission for Technology and Innovation CTI | 64
Dilution and returns at Exit Company stage Investment Ownership Value Multiple Entrepreneur ownership - 51.2% CHF 26M - Seed investor ownership CHF 250K 12.8% CHF 6M 26X A-round investor ownership CHF 1M 16% CHF 8M 8X B-round investor ownership CHF 3M 20% CHF 10M 3X CHF 4.25M 100% CHF 50M - Total •No investors subsequent to Round B • 7 years after seed investment, Company acquired for CHF50M •Seed Investor’s IRR is ~60% • Depending on time of investment, Round A & B investors likely IRR 30-50% • Everyone happy! www.venture.ch Commission for Technology and Innovation CTI | 65
Valuation & Dilution scenario The hypothetical high-tech start-up company Dilution of ownership and Increase in Valuation from idea through cash-flow positive company. Time zero The beginning At founding Valuation pre-money investment post-money Share price (rounded) Authorized shares Common $500,000 $ 100.0% 0.27 6-12 months Milestone 1 Pre-seed round $ 750,000 $ 150,000 $ 900,000 $ 10,000,000 83.3% 16.7% 100.0% 0.40 Year 1 $ 1,500,000 $ 500,000 $ 2,000,000 $ 10,000,000 Year 2 or 3 Milestone 3 VC Round A Milestone 2 Seed round 75.0% 25.0% 100.0% 0.67 $ 10,000,000 93,750 1,781,250 5.0% 95.0% 93,750 1,781,250 375,000 4% 79% 16.7% 93,750 1,781,250 375,000 750,000 3% 59% 12.5% 25.0% 1,875,000 100.0% 2,250,000 100.0% 3,000,000 100.0% Value of holdings UniversityInventors Founders Pre-seed investors Seed investors VC round A investors VC round B investors Total $25,000 $475,000 $0 $0 $0 $0 $500,000 Deliverables at the end of the stage: Small team Plan Family collateral IP assessment License Tech transfer Seed collateral 60.0% 40.0% 100.0% 1.00 $ 10,000,000 $ 5,000,000 $ 15,000,000 $ $62,500 $1,187,500 $250,000 $500,000 $0 $0 $2,000,000 Space A few key milestones (Prototype, market indicators) VC collateral 93,750 1,781,250 375,000 750,000 2,000,000 5,000,000 93,750 1,781,250 375,000 750,000 2,000,000 2,500,000 7,500,000 100.0% $93,750 $1,781,250 $375,000 $750,000 $2,000,000 $0 $5,000,000 100.0% 7.47 10,000,000 1.3% 23.8% 5.0% 10.0% 26.7% 33.3% 100.0% $187,500 $3,562,500 $750,000 $1,500,000 $4,000,000 $5,000,000 $15,000,000 The remaining key milestones OEM partner collateral $56,000,000 $ 10,000,000 1.9% 35.6% 7.5% 15.0% 40.0% Seven to ten years later Milestone 5 "Peak Sales" 66.7% 33.3% 100.0% 2.00 10,000,000 Issued shares University/Inventors Founders Pre-seed investors Seed investors VC round A investors VC round B investors Total $37,500 $712,500 $150,000 $0 $0 $0 $900,000 $ 3,000,000 $ 2,000,000 $ 5,000,000 Year 3 or 5 Milestone 4 VC Round B Design freeze Manuf'g scale up Market'g & Sales ready Distribution 93,750 1,781,250 375,000 750,000 2,000,000 2,500,000 7,500,000 1.3% 23.8% 5.0% 10.0% 26.7% 33.3% 100.0% $700,000 $13,300,000 $2,800,000 $5,600,000 $14,933,333 $18,666,667 $56,000,000 4 or 5 years of sales growth: Sales of $30 M Earnings of $7 M 8 x Earnings multiplier Adapted from Neworks, LLC www.venture.ch Commission for Technology and Innovation CTI 66
How to maximize value  Target equity at exit is not  The name of the game … a function of initial equity is not to minimize dilution stake but the reflects of the at each stage of a company strategy company’s existence  Equity at exit depends on: – – – – Technology success, Negotiation power, Market, Competition. Source : Diego Braguglia, CTI Start-UP, Angel Days 2012 www.venture.ch  But to maximize the value of your share at the end of the process. Harvard Business School, Financing Entrepreneurial Ventures Commission for Technology and Innovation CTI
Creative Negotiations Let the Market Set Price  Take “convertible note”  Offer anti-dilution clauses Performance Based Valuations  If pre-determined milestones achieved, valuation is CHF xM  If not, valuation is CHF yM Offset high valuation with preference  Preferred shares with liquidation preference www.venture.ch Commission for Technology and Innovation CTI
Convertible Loan  Subordinated convertible loan –Mandatory conversion upon equity round –Same terms as equity round with x% discount  Avoids valuation when –company is young –fair valuation difficult –Bridge loan required  Easy to implement  Generally not well received by future equity investor Source : Peter Pfister, Angel Day 2013 www.venture.ch Commission for Technology and Innovation CTI | 69
Anti-Dilution Provisions  Principle: –Shareholders agreement clause –In case of a down round the dilution is absorbed by the founders (Common Shareholders).  Several ways to calculate (full rachet, weighted average)  Adds responsibility on the founders to create value Source : Peter Pfister, Angel Day 2013 www.venture.ch Commission for Technology and Innovation CTI | 70
Liquidation Preference  Principle: – Shareholders agreement exit clause : – Preferred Shareholders = investors – Get paid x times (usually 1X ) investment before other payouts.  Improves returns  Saves a % of investment in case of failure  A question of fairness Source : Peter Pfister, Angel Day 2013 www.venture.ch Commission for Technology and Innovation CTI | 71
Liquidation preference example Investment Pre-Money Founders share Investor share Exit value Liquidation preference Payout founders Payout investor Multiple Liquidation preference Payout founders Payout investor Multiple Liquidation preference Payout founders Payout investor Multiple CHF 300 K CHF 1,200 K 80% 20% CHF 600 K 1,200 2,400 3,600 4,800 0X 0X 0X 0X 0X CHF 480 K 960 1,920 2,880 3,840 CHF 120 K 240 480 720 960 0.4 X 0.8 X 1.6 X 2.4 X 3.2 X 1X 1X 1X 1X 1X CHF 240 K 720 1,680 2,640 3,600 CHF 360 K 480 720 960 1,200 1.2 X 1.6 X 2.4 X 3.2 X 4.0 X 2X 2X 2X 2X 2X CHF -K 480 1,440 2,400 3,360 CHF 600 K 720 960 1,200 1,440 2.0 X 2.4 X 3.2 X 4.0 X 4.8 X Source : Peter Pfister, Angel Day 2013 www.venture.ch Commission for Technology and Innovation CTI | 72
Getting started www.venture.ch Commission for Technology and Innovation CTI | 73
Investment process 50% Screening Evaluation 4-6 Months Due diligence Investment 1% www.venture.ch Commission for Technology and Innovation CTI
Early early stage investors Swiss-based VCs International VCs Swiss-based BANs Aravis Atlas Venture Mountain Partners Group Biomed Invest BV group Core Capital Baytech Venture Creathor Venture Drapper Investment Go Beyond Ltd Business Angels Suisse (BAS) Bio Valley BAC EPS value plus Invision New Value Redalpine Venture Partners Vi Partners Dpixel Earlybird Emertec NBGI Ventures Index Ventures Start Angels Network b-to-v A3 Angels Club Valaisan des BA Blue Ocean Ventures Aventic BSI health Capital Eurofin Capital / Polytech ventures OCAS Ventures Sofinnova Swarraton Partners Defi gestion Fongit Jade invest Polytech Ventures Tschudin+Heid Vinci Capital Target Partners Wellington www.venture.ch Commission for Technology and Innovation CTI
Steps in the BA investment process Entrepreneur Business Angel Introduction Pitching Negotiations of business opportunity Deal flow identification Business plan Due diligence Valuation discussions Investment readiness Shareholder agreement Financing Source: fiban.org www.venture.ch Commission for Technology and Innovation CTI
Steps in the VC investment process Stage Entrepreneur Evaluating B. Plan Prepare Business Plan Due diligence Negotiation Provide information Disclose all relevant business information Meet to discuss BP Build relationship Outline terms Liaise with external consultants and accountants Negotiate final terms Document constitution and voting rights Contact investors Entrepreneur & investor Monitoring Provide periodic management accounts Communicate with investors Investor Review the Business Plan Conduct enquiries Value the business Consider financing structure Initiate external DD Draw up completion documentation Seat on board ? Monitor investment Constructive input Involvement in major decisions Reports Business Plan Offer letter Consultants reports Accountant reports Disclosure letter Warranties and indemnities Memorandum and articles of association Shareholder agreement Management accounts Minutes of boards and other meetings Source : Guide to private equity, BVCA / PWC, 2003 www.venture.ch Commission for Technology and Innovation CTI EXIT
Negotiations Why do deals fall through?  entrepreneur struggling to let go of control  limited role models (investor-backed companies)  inexperienced counsel  “shoppers”, there’s a better deal out there  two sides of the table can’t agree on “valuation www.venture.ch Commission for Technology and Innovation CTI
Select an investor who understands your business www.venture.ch Commission for Technology and Innovation CTI
Your questions ? Or case study Thank you 80 www.venture.ch Commission for Technology and Innovation CTI
Case study  Real Start-up Company  Founded in 2009  First financing in 2011 (BA)  Successful market entry  Closed financing round in spring 2013  Financial planning as well as valuation performed with Fintool 8.0 Source : Jean-Pierre Vuilleumier, Angel Day 2013 www.venture.ch Commission for Technology and Innovation CTI | 81
Case study Source : Jean-Pierre Vuilleumier, Angel Day 2013 www.venture.ch Commission for Technology and Innovation CTI | 82
DCF calculation CV Growth rate and Return on invested capital (ROIC) estimated after the planning period (Copeland) Continuous value (CV) represents 80 % of total Present value (PV). Source : Jean-Pierre Vuilleumier, Angel Day 2013 www.venture.ch Commission for Technology and Innovation CTI | 83
WACC cost of capital calculation Source : Capital asset pricing method (CAPM); , Jean-Pierre Vuilleumier, Angel Day 2013 www.venture.ch Commission for Technology and Innovation CTI | 84
Valuation sensitivity Source : Jean-Pierre Vuilleumier, Angel Day 2013 www.venture.ch Commission for Technology and Innovation CTI | 85

More Related Content

PDF
Business Angels in Switzerland
byClaude Florin
 
PDF
41 bullion vault noah sf 2012
byNOAH Advisors
 
PDF
France Digitale in 20 slides
byFrance Digitale
 
PPTX
Aalto - Tapio Siik
by3helix
 
PDF
Otaniemi fi services may 2013
byAri Huczkowski
 
PDF
How To Pitch - Genesis Partners (Gil Dibner)
byOmer Perchik
 
PPTX
Nicolas berg early stage trends redalpine_eth entrepreneur club_oct2013
byNicolas Berg
 
PPTX
Robin Slakhorst - Co-Founder Symbid.com - equity based crowdfunding
bySerbian Business Angels Network
 
Business Angels in Switzerland
byClaude Florin
 
41 bullion vault noah sf 2012
byNOAH Advisors
 
France Digitale in 20 slides
byFrance Digitale
 
Aalto - Tapio Siik
by3helix
 
Otaniemi fi services may 2013
byAri Huczkowski
 
How To Pitch - Genesis Partners (Gil Dibner)
byOmer Perchik
 
Nicolas berg early stage trends redalpine_eth entrepreneur club_oct2013
byNicolas Berg
 
Robin Slakhorst - Co-Founder Symbid.com - equity based crowdfunding
bySerbian Business Angels Network
 

Viewers also liked

PDF
Lebret stanford and hte - report
byHervé Lebret
 
PDF
Stanford high tech entrepreneurs-lebret
byHervé Lebret
 
PDF
Examples and synthesis of academic licenses to start ups - lebret
byHervé Lebret
 
PDF
Equity split in start ups
byHervé Lebret
 
PDF
Dix pistes pour innover dans des temps incertains 24.11.2015
byHervé Lebret
 
PDF
Intellectual property
byHervé Lebret
 
PPTX
Top 5 Deep Learning and AI Stories - October 6, 2017
byNVIDIA
 
Lebret stanford and hte - report
byHervé Lebret
 
Stanford high tech entrepreneurs-lebret
byHervé Lebret
 
Examples and synthesis of academic licenses to start ups - lebret
byHervé Lebret
 
Equity split in start ups
byHervé Lebret
 
Dix pistes pour innover dans des temps incertains 24.11.2015
byHervé Lebret
 
Intellectual property
byHervé Lebret
 
Top 5 Deep Learning and AI Stories - October 6, 2017
byNVIDIA
 

Similar to Venture2014 epfl financing

PDF
Stockholm svca 27okt2010
byNicolas Berg
 
PDF
European Startups -- Raising Funding in Silicon Valley
byPeter Szymanski
 
PDF
UE Startups -- 9 Factors in Raising Funding in Silicon Valley
byPeter Szymanski
 
PPTX
Venture Fast Track - Company Valuation and Metrics - top down or bottom up?
byThe Capital Network
 
PDF
Raising Funds in Silicon Valley -- Startup Chile Feb 2015 Presentation
byPeter Szymanski
 
PDF
Silicon Valley Warsaw School of Economics (SGH) Presentation 2015.05.23
byPeter Szymanski
 
PDF
Nyu itp pitchfest 2014 workshop 1
byJen van der Meer
 
PPTX
Dimension Mill Annual Presentation
byDimension Mill
 
PPTX
Go Silicon Valley - INVESTOR: BEST PRACTICE + Q&A
byi5invest
 
PDF
Valuing early stage companies (Venture Fast Track)
byThe Capital Network
 
PDF
My fundraising journey founders institute
byRaomal Perera
 
PDF
Venture Capital in the US
byEric Gabrys
 
PDF
Angel and Venture fundraising - A 360 perspective
byRavi Trivedi
 
PDF
Company Valuation and Metrics – top down or bottom up?
byThe Capital Network
 
PDF
ACG Warburg Chapter: “Venture Capital in Europe - The Highs and Lows and Why ...
byBenjamin Rohé
 
PDF
American Council on Germany (ACG) Warburg Chapter: “Venture Capital in Europe...
byBenjamin Rohé
 
PPT
MOJO Startup School
byMOJOmn
 
PDF
Show Me the Money: What are VC's investing in and why?
byThomas Wisniewski
 
PDF
Startup Valuation and is there a Bubble?
byi5invest
 
PDF
What's a good startup ? - Founder and Investor Point of View
byJeremie Berrebi
 
Stockholm svca 27okt2010
byNicolas Berg
 
European Startups -- Raising Funding in Silicon Valley
byPeter Szymanski
 
UE Startups -- 9 Factors in Raising Funding in Silicon Valley
byPeter Szymanski
 
Venture Fast Track - Company Valuation and Metrics - top down or bottom up?
byThe Capital Network
 
Raising Funds in Silicon Valley -- Startup Chile Feb 2015 Presentation
byPeter Szymanski
 
Silicon Valley Warsaw School of Economics (SGH) Presentation 2015.05.23
byPeter Szymanski
 
Nyu itp pitchfest 2014 workshop 1
byJen van der Meer
 
Dimension Mill Annual Presentation
byDimension Mill
 
Go Silicon Valley - INVESTOR: BEST PRACTICE + Q&A
byi5invest
 
Valuing early stage companies (Venture Fast Track)
byThe Capital Network
 
My fundraising journey founders institute
byRaomal Perera
 
Venture Capital in the US
byEric Gabrys
 
Angel and Venture fundraising - A 360 perspective
byRavi Trivedi
 
Company Valuation and Metrics – top down or bottom up?
byThe Capital Network
 
ACG Warburg Chapter: “Venture Capital in Europe - The Highs and Lows and Why ...
byBenjamin Rohé
 
American Council on Germany (ACG) Warburg Chapter: “Venture Capital in Europe...
byBenjamin Rohé
 
MOJO Startup School
byMOJOmn
 
Show Me the Money: What are VC's investing in and why?
byThomas Wisniewski
 
Startup Valuation and is there a Bubble?
byi5invest
 
What's a good startup ? - Founder and Investor Point of View
byJeremie Berrebi
 

More from Claude Florin

PDF
What have Business Angels and mentors learned from entrepreneurs at EPFL ?
byClaude Florin
 
PDF
Evaluation and due diligence of business angel investments
byClaude Florin
 
PDF
A3 Angels at EPFL
byClaude Florin
 
PDF
MIT and EPFL Innovation eco-systems
byClaude Florin
 
PDF
IMS applications case studies
byClaude Florin
 
PDF
Video collaboration - handsets, laptops, telepresence and beyond
byClaude Florin
 
PDF
Infrastructure for mobile communities
byClaude Florin
 
PDF
Mobile video using SOA / SDP and IMS
byClaude Florin
 
PDF
IMS presence for intuitive communications
byClaude Florin
 
PDF
E-commerce transaction validation using IMS
byClaude Florin
 
PDF
SOA and SDP mobile 2.0 deployment with OpenCall
byClaude Florin
 
PDF
It's all about Apps, VON, May 2006
byClaude Florin
 
PDF
3G personal mobile video case studies
byClaude Florin
 
PDF
New mobile messaging opportunities
byClaude Florin
 
PDF
IMS Service Innovation
byClaude Florin
 
PDF
La Video Mobile décolle
byClaude Florin
 
PDF
3G Video real world examples
byClaude Florin
 
PDF
Mobile video services, MoMo Helsinki 2006
byClaude Florin
 
What have Business Angels and mentors learned from entrepreneurs at EPFL ?
byClaude Florin
 
Evaluation and due diligence of business angel investments
byClaude Florin
 
A3 Angels at EPFL
byClaude Florin
 
MIT and EPFL Innovation eco-systems
byClaude Florin
 
IMS applications case studies
byClaude Florin
 
Video collaboration - handsets, laptops, telepresence and beyond
byClaude Florin
 
Infrastructure for mobile communities
byClaude Florin
 
Mobile video using SOA / SDP and IMS
byClaude Florin
 
IMS presence for intuitive communications
byClaude Florin
 
E-commerce transaction validation using IMS
byClaude Florin
 
SOA and SDP mobile 2.0 deployment with OpenCall
byClaude Florin
 
It's all about Apps, VON, May 2006
byClaude Florin
 
3G personal mobile video case studies
byClaude Florin
 
New mobile messaging opportunities
byClaude Florin
 
IMS Service Innovation
byClaude Florin
 
La Video Mobile décolle
byClaude Florin
 
3G Video real world examples
byClaude Florin
 
Mobile video services, MoMo Helsinki 2006
byClaude Florin
 

Recently uploaded

DOCX
Buy Google Voice Accounts Verified for Use in US and UK.docx
bymarketing
 
PDF
Microeconomics Made Easy: Concepts, Markets & Real-World Applications
byIPS Team
 
PDF
Best Online Resources for Buying Old Gmail Accounts in Bulk
byJames Warne
 
PDF
The-Benefits-of-Bridge-and-Hard-Money-Loans.pdf
byGSR SERVICES LLC
 
DOCX
How to Buy an Instagram Account Without Compromising Security.docx
bymarketing
 
PDF
Asstkaft_Seeman_Newsletter_February_2026.pdf
byAshis Kumar Dey
 
PDF
Secured Middle East Light Crude & LNG Supply for Asia 2026–2027.pdf
byAurélie Dupassieux
 
PPTX
Union_Budget_2026_27_Defence_Presentation.pptx
bycomefridaybaboon
 
PDF
Explore the 5 Best Sites for Bulk Instagram Account Sales
byJames Warne
 
PDF
TRADE AGREEMENTS, PETROLEUM AND ENERGY POLICIES.pdf
byAurélie Dupassieux
 
PDF
Monitoring implementation of the IMF program and EU assistance (January 2026)
byІнститут економічних досліджень та політичних консультацій
 
PDF
Economic Development Investment Program Investing in Growth.pdf
byMeridian International Sourcing Group
 
DOCX
Fact Sheet - MTD for Income Tax Self-Assessment (2026–2028)
byDoshi Outsourcing
 
PDF
India Economic Survey 2025-26 Economic Survey.pdf
byssuser9d8e4e
 
PDF
"India Budget 2026-2027 Key Features & Fiscal Reforms | Comprehensive Breakdo...
byCA Suvidha Chaplot
 
PDF
Economic Survey 2026 Analysis by Sachin Pratap Singh, Finance
bySachin Pratap Singh
 
PDF
How to Securely Purchase a Verified Binance Account in 2026
bymittchelclark
 
PDF
Build a Crypto-Friendly Bank in 2026: Cost, Timeline, and Architecture
bySoluLab1231
 
PDF
"Union Budget 2026-27: A Strategic Vision for India's Economic Growth and Dev...
byCA Suvidha Chaplot
 
PDF
Silver One Corporate Presentation February 2026
byAdnet Communications
 
Buy Google Voice Accounts Verified for Use in US and UK.docx
bymarketing
 
Microeconomics Made Easy: Concepts, Markets & Real-World Applications
byIPS Team
 
Best Online Resources for Buying Old Gmail Accounts in Bulk
byJames Warne
 
The-Benefits-of-Bridge-and-Hard-Money-Loans.pdf
byGSR SERVICES LLC
 
How to Buy an Instagram Account Without Compromising Security.docx
bymarketing
 
Asstkaft_Seeman_Newsletter_February_2026.pdf
byAshis Kumar Dey
 
Secured Middle East Light Crude & LNG Supply for Asia 2026–2027.pdf
byAurélie Dupassieux
 
Union_Budget_2026_27_Defence_Presentation.pptx
bycomefridaybaboon
 
Explore the 5 Best Sites for Bulk Instagram Account Sales
byJames Warne
 
TRADE AGREEMENTS, PETROLEUM AND ENERGY POLICIES.pdf
byAurélie Dupassieux
 
Monitoring implementation of the IMF program and EU assistance (January 2026)
byІнститут економічних досліджень та політичних консультацій
 
Economic Development Investment Program Investing in Growth.pdf
byMeridian International Sourcing Group
 
Fact Sheet - MTD for Income Tax Self-Assessment (2026–2028)
byDoshi Outsourcing
 
India Economic Survey 2025-26 Economic Survey.pdf
byssuser9d8e4e
 
"India Budget 2026-2027 Key Features & Fiscal Reforms | Comprehensive Breakdo...
byCA Suvidha Chaplot
 
Economic Survey 2026 Analysis by Sachin Pratap Singh, Finance
bySachin Pratap Singh
 
How to Securely Purchase a Verified Binance Account in 2026
bymittchelclark
 
Build a Crypto-Friendly Bank in 2026: Cost, Timeline, and Architecture
bySoluLab1231
 
"Union Budget 2026-27: A Strategic Vision for India's Economic Growth and Dev...
byCA Suvidha Chaplot
 
Silver One Corporate Presentation February 2026
byAdnet Communications
 

Venture2014 epfl financing

  • 1.
    Claude Florin, A3Angels Financing in the startup phase www.venture.ch Commission for Technology and Innovation CTI V.2
  • 2.
    Outline      Start Up Stagesand Financing Requirements Business Angels and Venture Capital Company Valuation Equity Share, Dilution & Exiting Getting started www.venture.ch Commission for Technology and Innovation CTI
  • 3.
    Start Up andFunding Stages Entrepreneurs and investors perspectives www.venture.ch Commission for Technology and Innovation CTI |2
  • 4.
    Revenue / EBITDA Fundingsources Grants Crowd funding BA network syndication Business Angels > CHF 50M/year in CH Banks Venture Capital > CHF 100M/year in CH Source: EBAN, BBAA NESTA-BBAA “Siding with the Angels”- 2009 www.venture.ch Commission for Technology and Innovation CTI
  • 5.
    What Type isyour Start-up ? CHF1 B CHF500M CHF100M Annual Sales CHF50M CHF10M CHF5M  Acquisition  Venture capital  Strategic partner  Business Angels  Grants  FFF CHF1M “Investable” business  Born to be big  Born to Flip  Driven to make a difference “Life-style” business  Work to feed the family  Work to live their passion  Social startups  Bootstrap  Self-funded Adapted from Newwork LLC www.venture.ch Commission for Technology and Innovation CTI 4
  • 6.
    Funding stages andamounts Seed Startup Efficiency Pre-Seed 0.5M Banks Acquisition Venture capital Testing required 9000 6000 3000 50-150k 0 100k, 300k + 50-150k FFF www.venture.ch 10-50 M+ 0.5 – 10 M+ Grants Adapted from Neworks, LLC; VC funding $M 1M, 5M+ Angel Self-funded x % assets + y % A/R Special funds Strategic partner Bootstrap Investment (CHF) Alternative product 30-60% margins 10-50k Startup Genome, Silicon Valley investments Commission for Technology and Innovation CTI 5
  • 7.
    Business Angels and VentureCapital www.venture.ch Commission for Technology and Innovation CTI |7
  • 8.
    Early-stage investment motivation Institutionalinvestors  VCs : return on investment to investors  Corporate VCs : strategic business development Business Angels :  Return on Investment is the metric  Staying involved (sense of usefulness)  Give back to community  Affection for entrepreneurs Includes altruistic motivations Source: Bill Payne www.venture.ch Commission for Technology and Innovation CTI |8
  • 9.
    Early-stage investment inSwitzerland (M CHF) 300.0 250.0 +40% 200.0 50M -50% 150.0 130M 100.0 50.0 0.0 2007 2008 VC start-up (growth) 2009 VC seed 2010 2011 Business Angels Source: EVCA/PEREP Analytics, conversion €=1.22 CHF / EBAN 2007-2008 / CTI for 2013, A3 Angels 2009-2012 www.venture.ch Commission for Technology and Innovation CTI 2012
  • 10.
    Swiss Business Angels Networksand members Networks BA Investment per capita CHF / hab 15 10 5 0 > 300 investors >30-50 million CHF / year >40 funded startups / year Multi-disciplinary € M/ M Source : A3 Angels ; Nelson Gray, EBAN www.venture.ch # deals/ M Claude Florin claude@a3angels.ch Commission for Technology and Innovation CTI 10
  • 11.
    Financing and entrepreunarialrisks Survival rate US ~40% Survival rate EU ~40% US Bureau of Labor Statistics, TechStars, Y Combinator. Quoted by Mars data accelerator http://data.marsdd.com/accelerators-worth-the-hype/#sthash.cXov6K8B.dpuf www.venture.ch Commission for Technology and Innovation CTI
  • 12.
    Investment portfolio model PortfolioMultiple Company 5-Year IRR Portfolio Multiple Company 5-Year IRR 1 0.0 0% 6 1.6 10% 2 0.0 0% 7 1.6 10% 3 0.0 0% 8 7.6 50% 4 1.3 5% 9 20.0 82% 5 1.3 5% 10 Unknown Unknown Return on Portfolio Investments (1-9) is 3.7X = 26% IRR over 5 Years Assuming survival rate of 60% and 1 big success – reality is often lower www.venture.ch Commission for Technology and Innovation CTI | 15
  • 13.
    Internal rate ofreturn (IRR) IRR % 1 2 3 4 5 6 7 1 Years 3 4 5 2 6 Multiple 7 Years 1 2 3 4 5 6 7 - - - - - 0% 1.00 1.00 1.00 1.00 1.00 1.00 1.00 100 41 26 19 15 12 10 5% 1.05 1.10 1.16 1.22 1.28 1.34 1.41 200 73 44 32 25 20 17 300 100 59 41 32 26 22 10% 1.10 1.21 1.33 1.46 1.61 1.77 1.95 400 124 71 50 38 31 26 15% 1.15 1.32 1.52 1.75 2.01 2.31 2.66 500 145 82 57 43 35 29 20% 1.20 1.44 1.73 2.07 2.49 2.99 3.58 600 165 91 63 48 38 32 25% 1.25 1.56 1.95 2.44 3.05 3.81 4.77 1.30 1.69 2.20 2.86 3.71 4.83 6.27 35% 1.35 1.82 2.46 3.32 4.48 6.05 8.17 40% 1.40 1.96 2.74 3.84 5.38 7.53 10.5 IRR % - 30% Multiple - .xls function = IRR(values, guess) e.g.: IRR(D1:D:60,0.3/12) monthly or annual compounding www.venture.ch Commission for Technology and Innovation CTI | 16
  • 14.
    Understanding VCs Who areVCs?  Business managers and entrepreneurs turned fund managers; professional investors What do VCs do?  Invest “other peoples money”  Analyze hundreds of potential investments  Choose only a few per year  After investing, VCs become active in the venture – take seat on the Board of Directors – some take interim executive management positions – get involved in strategic planning or oversight www.venture.ch Commission for Technology and Innovation CTI
  • 15.
    AT BE BG CH CY CZ DE DK EE EL ES FI FR HU IE IT LT LU LV MT NL PL PT RO SE SI SK UK 100.0 www.venture.ch Commission for Technology andInnovation CTI 1.3 0.0 5.2 15.4 0.0 4.3 3.0 0.4 0.0 103.2 84.8 55.9 63.8 56.3 300.0 273.9 354.7 400.0 50.3 8.7 0.0 69.9 65.3 130.0 200.0 0.0 0.1 29.5 60.7 0.1 million € 500.0 477.0 VC investments in seed and start-up M€ EU countries data; 2012 600.0 0.0 Source : EVCA | 19
  • 16.
    VC + BAmodel today “Tougher times for VCs” CHF 100K Founders +FFF + Grants Start CHF <2M @ CHF 1-2M Business Angels + Loans >6 mo CHF 1-2M @ <CHF 5M VC + BAs 0.5-5X multiple CHF >2M @ >CHF 5M VC B >12 mo  Increased financing requirements  European VCs struggling to raise new funds  Stronger BA co-investment … Trade sale IPO >3 year >8 year  Decreasing exit valuations  Limited trade sale opportunities  Closed IPO markets  Longer cycles before exit Source : Diego Braguglia, CTI Start-UP, Angel Days 2012 www.venture.ch Commission for Technology and Innovation CTI
  • 17.
    VC-funded exits :only few succeed 25’000 funded 6’400 exit 1:4 980 >€ 100M wins 1:26 35 >€1B winners 1:700 Other wins 23% Winners 77% € 290B exit value Source: Quilvest, 2000-2010 quoted by Jean-David Chamboredon, ISAI www.venture.ch Commission for Technology and Innovation CTI | 21
  • 18.
    Company Valuation www.venture.ch Commission forTechnology and Innovation CTI | 26
  • 19.
    Valuation outline The background Alignment of investors and founders  Different perspectives The numbers !!  Current early-stage financing trends  Business Angels methods for Seed valuation The Math ….  Comparables, Sales Multiple  Discounted Cash Flow  Product Assets, Replacement Value www.venture.ch Commission for Technology and Innovation CTI
  • 20.
    The two perspectives Align investors with entrepreneurs (drives the subsequent scalability of the business)  Roadmap and targets for investor  Provides incentives for entrepreneurs Motivation and control of Founders www.venture.ch Valuation based on experience and intuition Risk / reward of Business Investors Commission for Technology and Innovation CTI | 28
  • 21.
    Capital payment Investor‘s return Dividends + capital „Venture Capital“ method „BA“ methods www.venture.ch Cash Outflow Cash Inflow Operating costs Operating revenues expenses earnings Customers Investor‘s expenses Company Investor Investor and Company views •Discounted cash-flow , •Multiples (comparables) Commission for Technology and Innovation CTI | 29
  • 22.
    The Maths –Methods of Valuation Market data Market cap, similar in the market www.venture.ch VC methods, Business Angels empirical ratios Performance based Multiples financial indices EBIT, … Net assets, Commission for Technology and Innovation CTI Discounted Cash-Flow (DCF) | 30
  • 23.
    Valuation trends Europe $2.6M USA $ 2.75  Switzerland average= $4.2 M  50% = $1.5 - $8 M  Business Angels :  Western EU average= $2.6 M  50% = $1.2 - $3.5 M – Median valuation = $2.75 M – Two-thirds $1.0 - $3.0 M – 50% = $1.5 - $3.6 M  VC median = $15M <1M 1M 2M 3M 4M 5M 6M 7M+ 1Q’12 1Q’12 1Q’12 1Q’12 1Q’13 Source : Bill Payne, Angel List, Halo report, www.venture.ch Commission for Technology and Innovation CTI | 33
  • 24.
    Business Angels methods BillPayne Worksheet Management team 0-30% 25-40% Size of opportunity 0-25% 20-30% Product & technology 0-15% 10-30% Sales channels 0-10% 5-20% Competitive advantage 0-10% 5-20% Size of this round 0 - 5% 0-5% Need for funding 0 - 5% 0-5% Don’t make product/technology 95% www.venture.ch Commission for Technology and Innovation CTI
  • 25.
    BA Methods :worksheet 0-30% Strength of Management Team What is founder’s experience? Many years business experience Experience in this business sector Experience as a CEO Experience as a COO, CTO, CFO Experience as a product manager Experience only as a salesperson of technologist Straight out of school Is the founder willing to step aside, if necessary, for a Impact new CEO? deal killer Unwilling Difficult to convince 0 Neutral + Willing ++ Key part of the plan Impact Is the founder coachable? 0 Yes deal killer No Impact How complete is the management team? -Very incomplete (none identified) Somewhat incomplete 0 Good start + Rather complete team ++ A complete and experienced management team 0-15% Competitive Landscape Impact 0 + ++ +++ Impact -0 + ++ Impact -- Impact + ++ +++ ++ + -- + ++ 0-10% Impact -0 + +++ 0-10% Impact -0 ++ +++ 0-25% Size of the Opportunity - What size is the specific market for the company’s Impact product/service? deal killer <CHF50,000,000 0 CHF100,000,000 ++ >CHF500,000,000 Impact What is the potential for revenues in five years? <CHF30,000,000 0 CHF50,000,000 ++ >CHF100,000,000 www.venture.ch 0-10% Impact ++ + 0 What is the status of the IP (intellectual property)? Trade secrets only Core patents pending Core patents issued Complete patent estate What is the strength of competitors in this market? Very strong Strong Fragmented Weak Very weak How large are the barriers to entry? Very low Low 0 Modest High Very high Sales Channels What channels of sales are in place? Haven’t even considered Many possibilities identified Narrowed to one or two channels Initial channels verified Channels established Business Stage In what stage of business is the company? Only have a plan Writing code/in product development Product ready for customer evaluation Positive, verifiable customer acceptance by beta site Customer lined up Funding Required What amount of funding is required? CHF250,000 to CHF750,000 CHF750,000 to CHF1,500,000 CHF1,500,000 to CHF20,000,000 (depends on availability of VC capital in region) Commission for Technology and Innovation CTI
  • 26.
    Business Angel methods BerkusMethod Sound idea Prototype Quality mgt team Quality board Any roll-out, sales Value Range: www.venture.ch Meier Method CHF 0.5 Mio. + CHF 0.5 Mio. + CHF 1-2 M. + CHF 0.5 Mio. + CHF 0.5 Mio. CHF 1 - 6 Mio. 1 Manager 2 Managers Value Range: Commission for Technology and Innovation CTI CHF 1.5 Mio. + CHF 1.5 Mio. CHF 1.5 - 6 Mio.
  • 27.
    Discounted cash flow(DCF) Discounted by capital costs Company Value = Sum of discounted FCF + discounted CV 0 1 2 3 CV Continuing Value 4 5∞ t Discount (WACC) CAPM Seed stage 70-100% 4-14% Start-up stage 50-70% 4-14% First stage 50-70% Second stage 35-50% Later stage 25-40% Stage Source: Patrick Frei & Benoît Leleux ; Jean-Pierre Vuilleumier, Angel Days www.venture.ch Commission for Technology and Innovation CTI | 43
  • 28.
    DCF valuation issues DCF is not a suitable method to value start-ups –Valuation >80%derived from Continuing Value –Cumulated FCF negative for planning period –Cost of capital hard to estimate (>40 %) –Discount rates too low ⇒ valuations too high  Helps analyze company’s value drivers Source : Jean-Pierre Vuilleumier, Angel Day 2013 www.venture.ch Commission for Technology and Innovation CTI | 44
  • 29.
    Comparable ratios “multiples” P&L Turnover -material expenses - personnel expenses - other operating expenses = operative cash flow - Depreciation = result of operations Ratio Revenue EBITDA - Net interest paid = EBIT - Tax = annual surplus / annual loss  Valuation ≈ 1X revenue EBIT  Valuation ≈ 5X EBIT Net Income EBIT = earnings before interest, taxes, depreciation and amortization www.venture.ch Commission for Technology and Innovation CTI | 45
  • 30.
    Comparable ratios Industry Biotechnology Communications Equipment ComputerHardware Consumer Electronics Consumer Finance Electronic Components Electronic Equipment and Instruments Health Care Technology Home Entertainment Software Integrated Telecommunication Services Internet Retail Internet Software and Services Semiconductor Equipment Semiconductors Systems Software Business software Application software Wireless Telecommunication Services EV/EBITDA* NA 5.33 4.91 3.44 42.67 3.70 5.62 5.51 4.17 5.17 13.73 8.03 4.65 6.31 6.27 EV/EBIT* NA 7.75 7.40 6.35 49.19 6.39 8.01 10.45 31.04 10.28 18.41 22.55 6.37 NA 8.90 EV/Revenue** 4 2.4 2.6 3 6.61 12.17 Source: Damodoran on-line (Europe * ), http://startupvaluation.com (USA **) www.venture.ch Commission for Technology and Innovation CTI | 46
  • 31.
    Adjust valuation using“multiples” Today Actual Projected sales (earnings) What “multiple” would you buy these businesses? B A C F G time D E © 2004-2010 Neworks, LLC www.venture.ch Commission for Technology and Innovation CTI 47
  • 32.
    Every method givesa different valuation  Often over estimates real value  Uncertain assumptions  Not applicable for growth companies  Simple– no negative numbers  Time value not considered  Just a high-level forecast 15% 6,135 4,048 2,766 1,926 1,351 EBIT-Multiple 35% 40% 45% 50% 55% annual growth of the residual value 8% 10% 4,850 5,144 3,351 3,517 2,359 2,458 1,675 1,737 1,190 1,230 turnover multip Multiples risk ratio Discounted Cash-Flow 0.5 1.0 1.5 2.0 2.5 year 2011 0 0 0 0 0 2012 250 500 750 1,000 1,250 5.0 6.0 7.0 8.0 9.0 year 2011 neg. neg. neg. neg. neg. 2012 neg. neg. neg. neg. neg. Source : A3 Angels www.venture.ch Commission for Technology and Innovation CTI 2013 2014 2015 1,000 2,500 5,000 2,000 5,000 10,000 3,000 7,500 15,000 4,000 10,000 20,000 5,000 12,500 25,000 2013 neg. neg. neg. neg. neg. 2014 2,500 3,000 3,500 4,000 4,500 2015 10,000 12,000 14,000 16,000 18,000 2016 10,000 20,000 30,000 40,000 50,000 2016 25,000 30,000 35,000 40,000 45,000
  • 33.
    Need to adjustvaluation for Debt Assets capital assets Liabilities Equity Equity market value (number of shares X share price) + working capital (assets) liquid assets www.venture.ch Debt working capital (liabilities) Net Debt (+ net interest bearing financial liabilities – liquid assets ) = Enterprise Value (adjusted market value) Commission for Technology and Innovation CTI | 49
  • 34.
    Valuation: VC method Investor’sView (Venture Capital Method) IRR (Internal rate of return) Sum discounted CF = 0 Value 1 2 3 4 5 6 t  Define the target Internal Rate of Return (IRR)  Estimate capital requirement (FCF analysis)  Estimate time to exit (5-7 years)  Estimate exit value (transactions or multiples)   Backward calculation of the required share Source : Jean-Pierre Vuilleumier, Angel Days 2012 © CTI -Invest www.venture.ch Commission for Technology and Innovation CTI | 52
  • 35.
    Venture Capital Method Method Specificationof required IRR  Rate of return objective, e.g. 30%. or  Target multiple of the investment e.g. 7.5X Evaluation of exit  Time  Anticipated valuation at exit e.g. 25’000 Required share of equity Investment targeted return (7.5 X) 500 3,750 share of the Business Angels valuation in Seed financing round 15% 3,333 total proceeds at exit - return preference of VCs return at pro rata allocation return share of Business Angels Source : A3 Angels www.venture.ch Commission for Technology and Innovation CTI 27,500 2,500 25,000 3,750
  • 36.
    On-line tools forstartup comparison Equidam Equitynet Worthworm Source : http://www.equidam.com/ : https://www.equitynet.com/crowdfunding-tools/startup-valuation-calculator.aspx ; www.worthworm.com www.venture.ch Commission for Technology and Innovation CTI
  • 37.
    Equity Share, Dilution& Exiting www.venture.ch Commission for Technology and Innovation CTI | 59
  • 38.
    Definitions : pre/ post money valuations Company stage Entrepreneur ownership Seed investor ownership for CHF 250K Pre-Seed 100% Seed A-round B-round 80% 64% 51% 20% 16% 13% 20% 16% A-round investor ownership for CHF 1M B-round investor ownership for CHF 3M 20% Pre-money valuation CHF 1M CHF 4M CHF 12M Post money valuation CHF 1.25M CHF 5M CHF 15M Entrepreneur value CHF 1M CHF 3.2M CHF 7.7M Dramatic increase in the value of the company and value of your share The relevant question is not “how much of the pie do I own?” rather “how big is the pie?” www.venture.ch Commission for Technology and Innovation CTI | 64
  • 39.
    Dilution and returnsat Exit Company stage Investment Ownership Value Multiple Entrepreneur ownership - 51.2% CHF 26M - Seed investor ownership CHF 250K 12.8% CHF 6M 26X A-round investor ownership CHF 1M 16% CHF 8M 8X B-round investor ownership CHF 3M 20% CHF 10M 3X CHF 4.25M 100% CHF 50M - Total •No investors subsequent to Round B • 7 years after seed investment, Company acquired for CHF50M •Seed Investor’s IRR is ~60% • Depending on time of investment, Round A & B investors likely IRR 30-50% • Everyone happy! www.venture.ch Commission for Technology and Innovation CTI | 65
  • 40.
    Valuation & Dilutionscenario The hypothetical high-tech start-up company Dilution of ownership and Increase in Valuation from idea through cash-flow positive company. Time zero The beginning At founding Valuation pre-money investment post-money Share price (rounded) Authorized shares Common $500,000 $ 100.0% 0.27 6-12 months Milestone 1 Pre-seed round $ 750,000 $ 150,000 $ 900,000 $ 10,000,000 83.3% 16.7% 100.0% 0.40 Year 1 $ 1,500,000 $ 500,000 $ 2,000,000 $ 10,000,000 Year 2 or 3 Milestone 3 VC Round A Milestone 2 Seed round 75.0% 25.0% 100.0% 0.67 $ 10,000,000 93,750 1,781,250 5.0% 95.0% 93,750 1,781,250 375,000 4% 79% 16.7% 93,750 1,781,250 375,000 750,000 3% 59% 12.5% 25.0% 1,875,000 100.0% 2,250,000 100.0% 3,000,000 100.0% Value of holdings UniversityInventors Founders Pre-seed investors Seed investors VC round A investors VC round B investors Total $25,000 $475,000 $0 $0 $0 $0 $500,000 Deliverables at the end of the stage: Small team Plan Family collateral IP assessment License Tech transfer Seed collateral 60.0% 40.0% 100.0% 1.00 $ 10,000,000 $ 5,000,000 $ 15,000,000 $ $62,500 $1,187,500 $250,000 $500,000 $0 $0 $2,000,000 Space A few key milestones (Prototype, market indicators) VC collateral 93,750 1,781,250 375,000 750,000 2,000,000 5,000,000 93,750 1,781,250 375,000 750,000 2,000,000 2,500,000 7,500,000 100.0% $93,750 $1,781,250 $375,000 $750,000 $2,000,000 $0 $5,000,000 100.0% 7.47 10,000,000 1.3% 23.8% 5.0% 10.0% 26.7% 33.3% 100.0% $187,500 $3,562,500 $750,000 $1,500,000 $4,000,000 $5,000,000 $15,000,000 The remaining key milestones OEM partner collateral $56,000,000 $ 10,000,000 1.9% 35.6% 7.5% 15.0% 40.0% Seven to ten years later Milestone 5 "Peak Sales" 66.7% 33.3% 100.0% 2.00 10,000,000 Issued shares University/Inventors Founders Pre-seed investors Seed investors VC round A investors VC round B investors Total $37,500 $712,500 $150,000 $0 $0 $0 $900,000 $ 3,000,000 $ 2,000,000 $ 5,000,000 Year 3 or 5 Milestone 4 VC Round B Design freeze Manuf'g scale up Market'g & Sales ready Distribution 93,750 1,781,250 375,000 750,000 2,000,000 2,500,000 7,500,000 1.3% 23.8% 5.0% 10.0% 26.7% 33.3% 100.0% $700,000 $13,300,000 $2,800,000 $5,600,000 $14,933,333 $18,666,667 $56,000,000 4 or 5 years of sales growth: Sales of $30 M Earnings of $7 M 8 x Earnings multiplier Adapted from Neworks, LLC www.venture.ch Commission for Technology and Innovation CTI 66
  • 41.
    How to maximizevalue  Target equity at exit is not  The name of the game … a function of initial equity is not to minimize dilution stake but the reflects of the at each stage of a company strategy company’s existence  Equity at exit depends on: – – – – Technology success, Negotiation power, Market, Competition. Source : Diego Braguglia, CTI Start-UP, Angel Days 2012 www.venture.ch  But to maximize the value of your share at the end of the process. Harvard Business School, Financing Entrepreneurial Ventures Commission for Technology and Innovation CTI
  • 42.
    Creative Negotiations Let theMarket Set Price  Take “convertible note”  Offer anti-dilution clauses Performance Based Valuations  If pre-determined milestones achieved, valuation is CHF xM  If not, valuation is CHF yM Offset high valuation with preference  Preferred shares with liquidation preference www.venture.ch Commission for Technology and Innovation CTI
  • 43.
    Convertible Loan  Subordinatedconvertible loan –Mandatory conversion upon equity round –Same terms as equity round with x% discount  Avoids valuation when –company is young –fair valuation difficult –Bridge loan required  Easy to implement  Generally not well received by future equity investor Source : Peter Pfister, Angel Day 2013 www.venture.ch Commission for Technology and Innovation CTI | 69
  • 44.
    Anti-Dilution Provisions  Principle: –Shareholdersagreement clause –In case of a down round the dilution is absorbed by the founders (Common Shareholders).  Several ways to calculate (full rachet, weighted average)  Adds responsibility on the founders to create value Source : Peter Pfister, Angel Day 2013 www.venture.ch Commission for Technology and Innovation CTI | 70
  • 45.
    Liquidation Preference  Principle: –Shareholders agreement exit clause : – Preferred Shareholders = investors – Get paid x times (usually 1X ) investment before other payouts.  Improves returns  Saves a % of investment in case of failure  A question of fairness Source : Peter Pfister, Angel Day 2013 www.venture.ch Commission for Technology and Innovation CTI | 71
  • 46.
    Liquidation preference example Investment Pre-Money Foundersshare Investor share Exit value Liquidation preference Payout founders Payout investor Multiple Liquidation preference Payout founders Payout investor Multiple Liquidation preference Payout founders Payout investor Multiple CHF 300 K CHF 1,200 K 80% 20% CHF 600 K 1,200 2,400 3,600 4,800 0X 0X 0X 0X 0X CHF 480 K 960 1,920 2,880 3,840 CHF 120 K 240 480 720 960 0.4 X 0.8 X 1.6 X 2.4 X 3.2 X 1X 1X 1X 1X 1X CHF 240 K 720 1,680 2,640 3,600 CHF 360 K 480 720 960 1,200 1.2 X 1.6 X 2.4 X 3.2 X 4.0 X 2X 2X 2X 2X 2X CHF -K 480 1,440 2,400 3,360 CHF 600 K 720 960 1,200 1,440 2.0 X 2.4 X 3.2 X 4.0 X 4.8 X Source : Peter Pfister, Angel Day 2013 www.venture.ch Commission for Technology and Innovation CTI | 72
  • 47.
    Getting started www.venture.ch Commission forTechnology and Innovation CTI | 73
  • 48.
    Investment process 50% Screening Evaluation 4-6 Months Duediligence Investment 1% www.venture.ch Commission for Technology and Innovation CTI
  • 49.
    Early early stageinvestors Swiss-based VCs International VCs Swiss-based BANs Aravis Atlas Venture Mountain Partners Group Biomed Invest BV group Core Capital Baytech Venture Creathor Venture Drapper Investment Go Beyond Ltd Business Angels Suisse (BAS) Bio Valley BAC EPS value plus Invision New Value Redalpine Venture Partners Vi Partners Dpixel Earlybird Emertec NBGI Ventures Index Ventures Start Angels Network b-to-v A3 Angels Club Valaisan des BA Blue Ocean Ventures Aventic BSI health Capital Eurofin Capital / Polytech ventures OCAS Ventures Sofinnova Swarraton Partners Defi gestion Fongit Jade invest Polytech Ventures Tschudin+Heid Vinci Capital Target Partners Wellington www.venture.ch Commission for Technology and Innovation CTI
  • 50.
    Steps in theBA investment process Entrepreneur Business Angel Introduction Pitching Negotiations of business opportunity Deal flow identification Business plan Due diligence Valuation discussions Investment readiness Shareholder agreement Financing Source: fiban.org www.venture.ch Commission for Technology and Innovation CTI
  • 51.
    Steps in theVC investment process Stage Entrepreneur Evaluating B. Plan Prepare Business Plan Due diligence Negotiation Provide information Disclose all relevant business information Meet to discuss BP Build relationship Outline terms Liaise with external consultants and accountants Negotiate final terms Document constitution and voting rights Contact investors Entrepreneur & investor Monitoring Provide periodic management accounts Communicate with investors Investor Review the Business Plan Conduct enquiries Value the business Consider financing structure Initiate external DD Draw up completion documentation Seat on board ? Monitor investment Constructive input Involvement in major decisions Reports Business Plan Offer letter Consultants reports Accountant reports Disclosure letter Warranties and indemnities Memorandum and articles of association Shareholder agreement Management accounts Minutes of boards and other meetings Source : Guide to private equity, BVCA / PWC, 2003 www.venture.ch Commission for Technology and Innovation CTI EXIT
  • 52.
    Negotiations Why do dealsfall through?  entrepreneur struggling to let go of control  limited role models (investor-backed companies)  inexperienced counsel  “shoppers”, there’s a better deal out there  two sides of the table can’t agree on “valuation www.venture.ch Commission for Technology and Innovation CTI
  • 53.
    Select an investorwho understands your business www.venture.ch Commission for Technology and Innovation CTI
  • 54.
    Your questions ? Orcase study Thank you 80 www.venture.ch Commission for Technology and Innovation CTI
  • 55.
    Case study  RealStart-up Company  Founded in 2009  First financing in 2011 (BA)  Successful market entry  Closed financing round in spring 2013  Financial planning as well as valuation performed with Fintool 8.0 Source : Jean-Pierre Vuilleumier, Angel Day 2013 www.venture.ch Commission for Technology and Innovation CTI | 81
  • 56.
    Case study Source :Jean-Pierre Vuilleumier, Angel Day 2013 www.venture.ch Commission for Technology and Innovation CTI | 82
  • 57.
    DCF calculation CV Growth rateand Return on invested capital (ROIC) estimated after the planning period (Copeland) Continuous value (CV) represents 80 % of total Present value (PV). Source : Jean-Pierre Vuilleumier, Angel Day 2013 www.venture.ch Commission for Technology and Innovation CTI | 83
  • 58.
    WACC cost ofcapital calculation Source : Capital asset pricing method (CAPM); , Jean-Pierre Vuilleumier, Angel Day 2013 www.venture.ch Commission for Technology and Innovation CTI | 84
  • 59.
    Valuation sensitivity Source :Jean-Pierre Vuilleumier, Angel Day 2013 www.venture.ch Commission for Technology and Innovation CTI | 85