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Startup Valuation
ликбез
Who am I?
- Startup Weekend organizer
- Lonely Walls founder & CEO,
- Flowersense co-founder & CMO
www.lonely-walls.com
ww...
Startup valuation is more an
art than a science
They all say that:
but..
Valuation exercises are needed to
get the rage for further negotiations
with investors.
That is why...
.. the more valuation methods you will use,
the more accurate figures you will have:
https://www.equitynet....
The valuation of your startup
is what the market is willing
to pay
But, at the end:
Some (must know) terms and definitions
Pre-money valuation (PRM)
Post-money valuation (POM)
Option Pool
Dilution
Rounds: (...
A short recap on investment
rounds
Purpose: hypothesis validation
Amounts: Typically the range is $0-250k
fff, Angel, pre-seed:
Seed
Purpose: Figuring out the product and
getting to user/product fit.
Amounts: Typically the range for seed is
$250 K-$2...
Series A
Purpose: Scaling the product and getting to
a business model (aka getting to true
product/market fit)
Amounts: Us...
Series B
Purpose: The Series B is typically all about
scaling. You have traction with users, and
typically you also have a...
Series C
Purpose: The Series C is often used by a
company to accelerate what it is doing
beyond the Series B. This may inc...
First things first:
What kind of company are you evaluating:
- a traditional brick and mortar company?
- a flying startup/...
It is all about risks!
The higher risks, the lower chances of
succeeding, the higher valuation multiples.
PRE money
Notraction/
norevenue
POST money
Traction/
revenue
:(
:)
Validate idea, work on
traction!
You got a great team,
...
Basic truth for fundraising on
the early stage:
To an angel investor business consists of:
- 50% of the team
if the team i...
Team - experience, working full/part time
Market - how big is the market? Is it
growing? If so by how much?
Competitors - ...
Method 1: The Dave Berkus Model
for early stage companies
http://files.meetup.com/1731388/Valuation-011712.pdf
Method 2: Scorecard method for
early stage
http://files.meetup.com/1731388/Valuation-011712.pdf
1. Start with the median v...
Method 2: Scorecard method
http://files.meetup.com/1731388/Valuation-011712.pdf
Method 2: example, company Z
Z company has the following characteristics:
1. A strong team (125% of norm)
2. Average techn...
Method 2: example
2 mil average valuation x 1.125 multiple = 2,25 mil
Method 3: Investments In
At a minimum, your startup should be worth
the amount of money+ man-hours* that have
been investe...
Method 4: Industry Comparables
Compare your startup to one that has had
an exit or is at the similar stage. Mind
different...
MoneyTree report: get more industry
intelligence
https://www.pwcmoneytree.com/MTPublic/ns/index.jsp
Method 5: Industry Multiples
What is your:
- User engagement
- # of installs
- CAC (customer acquisition cost)
- Customer ...
RRR x industry multiple = valuation
Method 6: DCF
Discounted Cash Flow utilizes cash flow
projections for the business in future years,
discounting them due to...
DCF formula
DCF=
1
(1+R)
n
R - interest rate, assuming 10%, influenced
by the riskiness of the business, its liquidity
oth...
Method 7: P/E Ratio
Applicable for the mature companies.
A valuation ratio of a company's current share price
compared to ...
Method 8: Ratios
Company’s Valuation = Multiple *
EBITDA/Sales
Multiple = Market capitalization of the
company (enterprise...
Method 8: example
Enterprise Value = Share Price * # Shares
+ Preferred + Debt – Cash
let’s say $ 300 MM
Multiple = Enterp...
Method 9: asset based
approach
A type of business valuation that focuses on a company's
net asset value, or the fair-marke...
Startup/company’s valuations
online tools
www.equitynet.com
www.equidam.com
www.ownyourventure.com/equitySim.html
www.wort...
Tetiana Siianko
tsiyanko@gmail.com
http://about.me/siyasha
Thank you!
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Methods and approached to startup and company valuations.
Please be free to send me any additions/correction proposals.

Prepared for Startup&co lecture in Freud cafe, Kyiv, April 30, 2014

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Startup Valuation: from early to mature stages

  1. 1. Startup Valuation ликбез
  2. 2. Who am I? - Startup Weekend organizer - Lonely Walls founder & CEO, - Flowersense co-founder & CMO www.lonely-walls.com www.flowersenseapp.com http://about.me/siyasha
  3. 3. Startup valuation is more an art than a science They all say that: but..
  4. 4. Valuation exercises are needed to get the rage for further negotiations with investors.
  5. 5. That is why... .. the more valuation methods you will use, the more accurate figures you will have: https://www.equitynet.com/
  6. 6. The valuation of your startup is what the market is willing to pay But, at the end:
  7. 7. Some (must know) terms and definitions Pre-money valuation (PRM) Post-money valuation (POM) Option Pool Dilution Rounds: (fff, angel, seed, Series A, B, C) Return on Investment (ROI) Compound Annual Growth Rate (CAGR) Revenue Return Rate (RRR) EBITDA, EBITA, EBIAT,
  8. 8. A short recap on investment rounds
  9. 9. Purpose: hypothesis validation Amounts: Typically the range is $0-250k fff, Angel, pre-seed:
  10. 10. Seed Purpose: Figuring out the product and getting to user/product fit. Amounts: Typically the range for seed is $250 K-$2 million.
  11. 11. Series A Purpose: Scaling the product and getting to a business model (aka getting to true product/market fit) Amounts: Used to be $2m-$15million with a median of $3-$7 million. Series A amounts have gone up dramatically recently to more of a $7-15 million raise being typical.
  12. 12. Series B Purpose: The Series B is typically all about scaling. You have traction with users, and typically you also have a business model that has come together. Amounts: Anywhere from 7 million to tens of millions.
  13. 13. Series C Purpose: The Series C is often used by a company to accelerate what it is doing beyond the Series B. This may include going international, or costly acquisitions Amounts: This can range from tens to hundreds of millions. and IPO :)
  14. 14. First things first: What kind of company are you evaluating: - a traditional brick and mortar company? - a flying startup/IT?
  15. 15. It is all about risks! The higher risks, the lower chances of succeeding, the higher valuation multiples.
  16. 16. PRE money Notraction/ norevenue POST money Traction/ revenue :( :) Validate idea, work on traction! You got a great team, awesome idea and you are a lucky bastard! Bootstrapping or fundraising full speed! Seems. that things are good. Work on scaling!
  17. 17. Basic truth for fundraising on the early stage: To an angel investor business consists of: - 50% of the team if the team is weak, idea is irrelevant - 25% idea (understanding that the team will pivot) - 25% revenue plan hope is NOT a plan :)
  18. 18. Team - experience, working full/part time Market - how big is the market? Is it growing? If so by how much? Competitors - how big are the barriers to entry against competitors? Assets - what type of assets do you own? Customers - how many customers do you have at this very moment? Are these repeating or one off?
  19. 19. Method 1: The Dave Berkus Model for early stage companies http://files.meetup.com/1731388/Valuation-011712.pdf
  20. 20. Method 2: Scorecard method for early stage http://files.meetup.com/1731388/Valuation-011712.pdf 1. Start with the median value for the pre-revenue companies in the region 2. Determine valuation factors and weights 3. Determine performance level for each factor 4. Calculate the weighted total for factors 5. Multiply median value by weighted total Assumption: For the [area] based on [data] we assume that valuation ranges from $1.5M to $2.5M, with a $2.0M median
  21. 21. Method 2: Scorecard method http://files.meetup.com/1731388/Valuation-011712.pdf
  22. 22. Method 2: example, company Z Z company has the following characteristics: 1. A strong team (125% of norm) 2. Average technology (100% of norm) 3. Large market opportunity (150% of norm) 4. Single angel round needed (100% of norm) 5. Competition is stronger (75% of norm) 6. More work needed on sales/partners (80% of norm) 7. Excellent initial customer feedback (100% - 1other)
  23. 23. Method 2: example 2 mil average valuation x 1.125 multiple = 2,25 mil
  24. 24. Method 3: Investments In At a minimum, your startup should be worth the amount of money+ man-hours* that have been invested in it by the founders during all the time of startup existence. *1 man-hour costs an average salary one would get working elsewhere
  25. 25. Method 4: Industry Comparables Compare your startup to one that has had an exit or is at the similar stage. Mind different geographical regions! www.vcexperts.com www.myfrenchstartup.com www.angel.co
  26. 26. MoneyTree report: get more industry intelligence https://www.pwcmoneytree.com/MTPublic/ns/index.jsp
  27. 27. Method 5: Industry Multiples What is your: - User engagement - # of installs - CAC (customer acquisition cost) - Customer LTV (lifetime value) - ARPU (average revenue per user) - Customer attrition (churn rate) - Conversion rate (funnel) Knowing the data above, estimate year RRR (revenue run rate = revenue projections)
  28. 28. RRR x industry multiple = valuation
  29. 29. Method 6: DCF Discounted Cash Flow utilizes cash flow projections for the business in future years, discounting them due to the inflations and risks. DCF is not appropriate for early stage companies with extreme lack of predictability of cash flows
  30. 30. DCF formula DCF= 1 (1+R) n R - interest rate, assuming 10%, influenced by the riskiness of the business, its liquidity other opportunities, etc N - ordinal number of year you are calculating it for Years: 1 2 3 4 Cash flows assumptions 90 m 100 m 110 m 100m ... Interest rate: 10% For ex, DCF for year #2: 1/(1+0.1) = 0.83 * 100 m = 83 m Company’s value = DCF year 1+ DCF year 2 + DCF year 3.. 2
  31. 31. Method 7: P/E Ratio Applicable for the mature companies. A valuation ratio of a company's current share price compared to its per-share earnings. P/E ratio = Market Value per Share Earnings per Share (EPS) For example, if a company is currently trading at $43 a share and earnings over the last 12 months were $1.95 per share, the P/E ratio for the stock would be 22.05 ($43/$1.95). Company’s value = 1 years revenue * P/E ratio
  32. 32. Method 8: Ratios Company’s Valuation = Multiple * EBITDA/Sales Multiple = Market capitalization of the company (enterprise value)/EBITDA or Sales (if no revenue yet)
  33. 33. Method 8: example Enterprise Value = Share Price * # Shares + Preferred + Debt – Cash let’s say $ 300 MM Multiple = Enterprise Value / EBITDA for ex: $300 MM/ $50 MM = 6.0x Enterprise Value = Multiple * EBITDA Enterprise Value = 6.0x * $40 MM = $240 MM
  34. 34. Method 9: asset based approach A type of business valuation that focuses on a company's net asset value, or the fair-market value of its total assets minus its total liabilities (=debts). The asset-based approach basically asks what it would cost to recreate the business. The cost of assets (servers,buildings, machines, patents etc) is taken from the balance sheet.
  35. 35. Startup/company’s valuations online tools www.equitynet.com www.equidam.com www.ownyourventure.com/equitySim.html www.worthworm.com/getting-started-guide
  36. 36. Tetiana Siianko tsiyanko@gmail.com http://about.me/siyasha Thank you!
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Methods and approached to startup and company valuations. Please be free to send me any additions/correction proposals. Prepared for Startup&co lecture in Freud cafe, Kyiv, April 30, 2014

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