Show Me the Money: Jong Lee at SMECC - 20130205

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Show Me the Money: Jong Lee
Have a great idea, but don't know the first steps on how to put a number on the business? Jong Lee, successful venture capital investor and entrepreneur, will be speaking about the practical steps to take to value your business, the common terminology and jargon used to describe different types of valuations, how outside investors and angels will view your business, and other basics of Venture Capital.

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Show Me the Money: Jong Lee at SMECC - 20130205

  1. 1. SME Clinic Series Show Me The Money! Jong Lee Feburary 5, 2013 Hong Kong 1
  2. 2. Thank You For Coming! JLL Entrepreneur Series, Jong Lee 2
  3. 3. Happy Hour until 8PM! JLL Entrepreneur Series, Jong Lee 3
  4. 4. Jong Lee • Founder & Managing Director of RGL Holdings, Ltd. – Private Equity, Venture Capital, Turnarounds & Advisory – Current focus on cross border tech, startups & SMEs, special purpose real estate, social enterprise and education – Active in Asia, N. America and Europe • My Former Lives: – H&Q Asia Pacific – Oldest Pacific Rim PE / VC Firm – UBS – Technology Investment Banking – Simpson Thacher & Bartlett – LBOs for KKR & Blackstone • Lived and Worked in Hong Kong, Tokyo, Beijing, Seoul, Los Angeles, Silicon Valley, New York, etc…. • J.D. Columbia University (yes, I’m a lawyer…) • BAS (Bioengineering) & BA (Political Science). University of Pennsylvania
  5. 5. Selected Deal Sheet 5 5
  6. 6. Community Involvement 6 6
  7. 7. Let’s Talk About Money… RGL Holdings; Jong Lee 2013 7
  8. 8. Different Kinds of [Money] • • • • • • • • Upfront Cash (YES!) Staged Cash Lines of Credit Guarantees In Kind Liquid Assets Resources What else? • • • • • • • • • Equity Debt Convertible NREs Personal F&F Angel VC / PE Real Revenues! RGL Holdings; Jong Lee 2013 8
  9. 9. What are you doing? RGL Holdings; Jong Lee 2013 9
  10. 10. Why is it Worth Something? RGL Holdings; Jong Lee 2013 10
  11. 11. What is of Value? • The People – You – Your Team • • • • Customers Relationships Product Intellectual Property – Technology – Other IP • Your Head Start • Your Cash / Revs • Your synergy with someone or something else • Competition • Location • Regulation • What else? RGL Holdings; Jong Lee 2013 11
  12. 12. What is of Value May Depend a Lot on Who is Looking RGL Holdings; Jong Lee 2013 12
  13. 13. Unfortunately, No Matter What, A Lot of Value Depends on Timing and Supply and Demand for What You Have RGL Holdings; Jong Lee 2013 13
  14. 14. Ok Let’s Talk VC Valuations RGL Holdings; Jong Lee 2013 14
  15. 15. Assumptions • We are talking equity or convertible debt • Your business is scalable and has potential exit value as an IPO or M&A within 3 – 5 years • Let’s pretend we are in Sand Hill Road • Let’s assume your company will eventually have revenues and profitability or a lot of users (something we can readily measure) RGL Holdings; Jong Lee 2013 15
  16. 16. Some Non Financial Ways VCs Can Value Your SME • How much is your team worth to someone else (e.g. Google, Apple, etc..)? – Today? Next Year? • How much is your IP worth to someone else? – Today? Tomorrow? • How Much are your customers or products worth to someone else? – Today? Tomorrow? • How Much would it be worth to someone to take you out of the market? – Today? Tomorrow? RGL Holdings; Jong Lee 2013 16
  17. 17. Rule of Thumb / Shotgun Approaches • “Standard Deals” – E.g. one size fits all convertible debt deals for successful graduates of some incubators – E.g. “standard terms” for some more established angel groups (valuation ranges based on company stage) • Local “Market” Deals – “Angels deals Palo Alto are typically $X for y% of the company in common shares” – Same but convertible debt at a discount to next round with max – Series A means… – Series B means… – Series C means… RGL Holdings; Jong Lee 2013 17
  18. 18. Financial Valuations • Metrics Used: • How Metrics are Used – Your current and future revenues – Your current and future profits – Your current and future user base – Your current and future asset base – Your current and future human base – – – – – – – – Revenue ratios Earnings ratios DCF $ per customer $ per engineer Enterprise Value PEG ratios What else??? RGL Holdings; Jong Lee 2013 18
  19. 19. Financial Valuations • Revenue ratios • $ per customer – Price per share vs Revenues (FTM/TTM) • Earnings ratios – Is there a range in value $ per customer • $ per engineer – Price per share vs Earnings (FTM/TTM) • DCF – How much is each engineer worth? • Enterprise Value – Discounted Cashflows – Net present value exercise – Equity – debt - cash • PEG ratios – Price earnings growth RGL Holdings; Jong Lee 2013 19
  20. 20. VC Valuations are often different from strategic, angel or F&F methods RGL Holdings; Jong Lee 2013 20
  21. 21. It’s often about COMPS COMPS COMPS! RGL Holdings; Jong Lee 2013 21
  22. 22. Comparables • VCs (along with pretty much everyone else) can only really value you based on how you compare to your peers (present or future) • Who are your peers? • What metrics can we use to compare? • What timelines are we talking about? • Which market are you talking about? RGL Holdings; Jong Lee 2013 22
  23. 23. Comparables • VCs rely heavily on recent comparable transactions (especially for M&A) • VCs rely heavily on relevant (not necessarily just recent) public market comparables to your company • Different markets, countries, companies matter a whole lot • More art than science!!! RGL Holdings; Jong Lee 2013 23
  24. 24. Example IPO Exit Valuation Exercise RGL Holdings; Jong Lee 2013 24
  25. 25. So Why Does Any Of This Matter to SMEs in Hong Kong? RGL Holdings; Jong Lee 2013 25
  26. 26. Great Question RGL Holdings; Jong Lee 2013 26
  27. 27. Valuations Always Matter • Aren’t we always hearing questions about when VCs will start investing in HK? • Valuations = Equity and Share • Equity is expensive • Fundamentals and the need to understand comparables always matter • Understanding how quickly supply and demand for what you are, offer or have is very important 27 RGL Holdings; Jong Lee 2013
  28. 28. Open Q&A Clinic RGL Holdings; Jong Lee 2013 28
  29. 29. Future Clinics • • • • • • • Bootstrapping HK Style Term Sheets NDAs Stock Options Shareholder & Investment Agreements SME Loans, Grants and Programs SME Tech Toolkit RGL Holdings; Jong Lee 2013 29
  30. 30. Please Fill Out the SCC Questionaire! RGL Holdings; Jong Lee 2013 30
  31. 31. Questions? Thank You jong@rglcompanies.com RGL Holdings; Jong Lee 2013 31 31

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