1. Valuation and forecasting

2. Before we start… 3 Exit Analysis – Nordic VCs Decreasing valuations 8 Financial Fundamentals Learning the income statement, balance sheet etc 18 Financial Performance Key ratios and actual performance vs. plans 27 Financial Planning Combine top-down and bottom-up approach and ensure link between plan and budget 34 Valuation Relative and absolute methods. DCF is an absolute method that discounts future cash flows 48 The VC Method He value of a company is a matter of discussion over a cup of coffee 62

3. Before We Start…

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8. Exit Analysis – Nordic VCs

9. Trade sales are most common and the crises has reduced # exits and closed IPO window Exit Analysis – Nordic VCs Source: VentureXpert

10. As well as having reduced the values – IPOs are typically larger than trade sales Exit Analysis – Nordic VCs Source: VentureXpert

11. Decreasing exit value and increased general risk leads to lower valuation for early-stage Exit Analysis – Nordic VCs Source: VentureXpert

12. Know your value inflection points... Exit Analysis – Nordic VCs Market Share Exit Value Proof-of-scale Proof-of-business Proof-of-concept Capital Need Pre-venture Venture

13. Have the end in mind… Exit Analysis – Nordic VCs IPO Competitor Start-up Strategic Supplier Strategic Customer New entrant

14. Approach the exit differently Exit Analysis – Nordic VCs Business strategy to fit exit Trade Sale Identify buyers Position the company Create bid wars Asses timing – capital need and market Business strategy to fit exit Prepare organisation setup Create exposure IPO

15. US exits have higher values – for several reasons Exit Analysis – Nordic VCs Source: Vækstfonden

16. US VCs participate in the most attractive exits of Nordic companies Exit Analysis – Nordic VCs Vækstfonden

17. Why do you think that the exit values are higher for the Nordic companies who has a US VC investor on board? Exit Analysis – Nordic VCs

18. Financial Fundamentals

19. Standard P&L (Income Statement) Financial Fundamentals

20. Bill of Material – a nice reality check Financial Fundamentals

21. The Balance Sheet - Assets Financial Fundamentals

22. The Balance Sheet – Liabilities and Equity Financial Fundamentals

23. Cash Flow Statement Financial Fundamentals

24. Operational Breakeven Financial Fundamentals NOPAT EVA = Net Operating Profit AfterTaxes (NOPAT) – After-Tax Dollar Cost of Financial CapitalUsed Seperates a firm’s operating from itsfinancing NOPAT = EBIT-Tax NOPAT Breakevenrevenues (NR) = TOFC/(1-VCRR) TOFC = Total Operating FixedCost VCRR = Ratio of Variable cost to revenue EBDAT EBDAT = Earnings before Depriciation, amortization and taxes EBDAT Breakeven = Amount of revenues to cover cash OPERATING expenses Breakeven: EBDAT = 0

25. Real Break Even Financial Fundamentals Real Breakeven Whenthereexist Positive FreeCash Flow FCF = Net Income+ (Depriciation/Armortization) - ∆ WorkingCapital-CAPEX Cash Burn = OPEX + Interest+ Tax + IncreaseInventory- ∆ payables and accruedliabilities + CAPEX Cash Build = Net Sales – Increase in Recievables Net Cash Burn = Cash Burn – Cash Build

26. As an entrepreneur you must know Burn Rate: Avg. monthly cash burn Runway: Remaining liquidity / Burn Rate Financial Fundamentals

27. Financial Performance

28. Ratios – using common sense and industry benchmarks Financial Performance

29. The use of ratios relates to life cycle Financial Performance Maturity Public & Seasoned Rapid Growth B,C-round A-round Survival Startup Financing Startup Seed Financing Focus on cash & cost Broad Focus on ratios Focus on cash & profitability

30. I look at traction in Sales Financial Performance

31. and traction in healthy operations Financial Performance

32. … as well as CASH Financial Performance

33. Critical Success Factors Financial Performance

34. Financial Planning

35. The progress for successful venture Financial Planning Market Share Exit Value Proof-of-scale Proof-of-business Proof-of-concept Capital Need Pre-venture Venture

36. and the cash balance Financial Planning High Cash Balance Low Founder and FFF Seed Exit National Venture Int. Venture

37. Time fundraising with value inflection points and before cash balance is too low Market Share Exit Value Proof-of-scale Proof-of-business Proof-of-concept Capital Need Pre-venture Venture High Cash Balance Low Founder and FFF Seed National Venture Int. Venture

38. Tools for financial planning in a growth company Financial Planning

39. Key Problem – Missing link between business plan and financial plan Financial Planning

40. If my company is expecting to have this much revenue – then what is my plan to get there? Financial Planning If my plan is this – then what is the likely revenue, cost and capital requirement

41. How to workwith a business plan / budget /anything in life… Financial Planning

42. Top Down – starting with the potential Financial Planning

43. Buttom Up – Building it up from today Financial Planning

44. Financial Planning ...clarify to yourself and potential investors what the assumptions for the budgetare in relation to revenue drivers, cost drivers, investments etc. It is always better to make informed and reasonable assumptionsthan claiming it is difficult to predict the future

46. Base line

48. Forecasting will become easier with maturity and lower risk Financial Planning Maturity Public & Seasoned Rapid Growth B,C-round A-round Survival Startup Financing Startup Seed Financing Low High Moderate Sales Forecasting Accuracy

49. Valuation

50. Four steps of valuation Valuation

51. Financial Planning Thismakesvaluation more ART than SCIENCE

52. Two valuation types Valuation

54. Price / Sales (P/S)

55. Price / Book (P/B)

56. EV / EBIT

57. EV / NOPAT

58. Discounted Cash Flow (DCF)

59. Economic Value Added (EVA)

60. Maximum Dividen Method

62. Discounted Cash Flow (DCF)

63. Payback

65. The principle of NPV Valuation Identify future cash flows Bring cash-flows to present valuewith discount rate thatreflects the risk of cash flows

66. The DCF valuation for firms (EV) Valuation

67. Generic DCF valuation Valuation AswathDamodaran

68. But which cash flows Valuation

69. Calculating the Free Cash Flow Valuation Free Cash Flow to Equity (FCFE) =Net Income - Net Capital Expenditure - ∆in Net Working Capital + New Debt - Debt Repayment Free Cash Flow to Firm (FCFF) = EBIT*(1-tax) Unleveredcash flow - CAPEX - Depreciation - ∆WorkingCapital or Free Cash Flow to Firm (FCFF)= FCFE + InterestExpenditure(1-t)

70. Valuing a firm – the discount factor Valuation WACC = Weighted Average Cost of Capital WACC = Cost of Equity * Equity ratio + Cost of Debt * Debt Ratio 30Y State Bond 4,5% Measure for how closely a stock follows the market

71. Valuing firms – Terminal value (two approaches) Valuation Terminal Value=FCFF n * (1+g)/ (r-g) Perpetuity Growth method FCFF = Free Cash Flow to the Firm n = periods r = WACC g = perpetual growth rate (often 1-3%) Multiple Terminal Value=EBITDA * Peer Multiple Exit multiple Method (1+WACC)n FCFF = Free Cash Flow to the Firm Peer Multiple = Enterprise Value (EV) / EBITDA for comparable company n= Periods

72. The VC Method

73. The VC Method = The Exit Multiple Method The VC Method Multiple Terminal Value=EBITDA * Peer Multiple Exit multiple Method (1+WACC)n FCFF = Free Cash Flow to the Firm Peer Multiple = Market Cap / EBITDA or Price / Sales for comparable companies n= Periods

74. We consider The VC Method ….. IRR, Return Multiple, AbsoluteReturn, Ownership under the different deal terms... … the case from an overall perspective (team, industry, technology, etc)... However most often the price of a companycomesdown to negotiation over a cup of coffee

75. The Summary Exit Analysis – Nordic VCs Decreasing valuations 8 Financial Fundamentals Learning the income statement, balance sheet etc 18 Financial Performance Key ratios and actual performance vs. plans 27 Financial Planning Combine top-down and bottom-up approach and ensure link between plan and budget 34 Valuation Relative and absolute methods. DCF is an absolute method that discounts future cash flows 48 The VC Method He value of a company is a matter of discussion over a cup of coffee 62