Presentation by Uzoma Nwagba

2. LEARNING
PURPOSE
Deliver
Professional
Knowledge
- Data School
- Product School
Supporting Businesses Leveraging
Innovation & Technology
in solving poverty and its symptoms in Africa
PURPOSE
ACCELERATING AND
COMMERCIALIZING INNOVATION
RESEARCH
&
SUSTAINABILITY
Drive
social-impact
products
addressing SDGs
ACCELERATION
Commercialize
& scale
high-impact
businesses
Accelerate
idea-to-
commercialization
curve
Support
initiatives that
enable govt
deliver services
to citizens
DIGITAL
PRODUCT
INCUBATION
CIVIC TECH
info@ekoinnovationhub.com

3. ➢ EVALUATE THE WORTH OF YOUR
STARTUP.
➢ LEARN TO DIFFERENTIATE THE VALUE
OF A COMPANY FROM ITS PRICE.
➢ WHAT TO KNOW IF YOU ARE BUYING
OR SELLING A COMPANY.
➢ UNDERSTAND THE INTRICACIES OF
STARTUP VALUATION PROCESS

4. Uzoma Nwagba
September 2020
ABC of Valuation

5. Let’s get the intro out of the way
Past:
- Analyst, Goldman Sachs (Investment Bank)
- Product Manager, Microsoft
- MBA, Harvard Business School
- Senior Associate, African Capital Alliance (Private Equity)
Present:
- COO, Government Enterprise and Empowerment
Programme
- Passive investor

6. undraising
Why do we value a company?
The Big “F”-word
Fu*&@%#!$!#~
- Selling a piece, or all of it.

7. What does valuation have to do with relationships?

8. The Big Question
Today The Future
?
How much is a company worth?

9. Worth vs. Price
Worth is fundamental.
Price is perception.
(na wash)
Your goal: price >= worth

10. Why do you need a valuation?
1
When you sell equity in a business to an outside investor such
as an angel investor or venture capital firm, the investor trades
cash for a percentage ownership of the business.
2
To determine the percentage of equity the investor’s cash
buys, the total value of the business needs to be agreed.

11. Your company
is worth
whatever you
and the investor
agree its worth
The First Rule of Business Valuation

12. Tale of jeans…
$30 ??

13. Fundamentals of Valuation
Pre-money valuation [jeans]
+ Investment [$100]
= Post-money valuation [jeans + $100]
• Investment duration (time)
• Annual return (IRR)
• Exit multiple
• Exit valuation

14. Key valuation factors investors consider (1/2)
• Market Size: How big is the market the business is going after?
• Size of the Company: What are the revenue projections over the next
3-5 years?
• Intellectual Property (IP): Does the business have significant IP or other
highly competitive barrier advantage?
• Founders and Team: How experiences is the founding team? Have
they worked on a business before? How knowledgeable are the
about the problem their business seeks to solve?
• Product/Service or Technology: Is the product/service/technology
revolutionary and disruptive?

15. Key valuation factors investors consider (2/2)
• Traction: Do you have customers or uses? At what rate can you add
new ones?
• Amount Already Invested: How much money and time already gone
into development?
• Stage of the business: What stage of development is the business at
(idea, product developed, product tested, revenue +ve)?
• Competition: What is the competition like in the sector of the
business?
• Need for Additional Investment: Does the business need a significant
amount of additional cash to reach its goal?

16. The Valuation Equation
Pre-Money
Valuation
₦2 Million
Investment
Amount
₦1 Million
Post-Money
Valuation
₦3 Million
+ =
• Pre-Money Valuation: How much your business is worth
before an investment
• Post-Money Valuation: How much your business is worth
after the investment

17. Valuation Method #1
The Market Comparables Method

18. The Market Comparables Method
“You are like
business X and it
was just valued
at 4x its revenue
pre-money, so
your business
must also be in
that same 4x
revenue range.”
Business Attributes Comparable business Your business
Industry e-Commerce e-Commerce
Niche General Merchandise Household items
Founder
Experience
1 experienced, 2 new co-
founders
First-time business founders
Company Location Lagos, Nigeria Lagos, Nigeria
Customer Traction 180 orders per day 155 orders per day
Model B2B B2B
Stage of
Development
Early: Version 1.2 released Early: MVP launched
Revenue ₦25,000,000 per annum ₦10,800,000 per annum
Valuation
(recent fundraise)
₦100,000,000 (?)
Entry multiple 4x

19. Valuation Method #2
The VC Quick Method

20. The VC Method (quick; anchored on a ready investor)
Details Example
Step #1 How much money do you need for
the next 18 months
Raise Amount:
₦30 million covers next 18 months of operations
Step #2 Understand how much equity the
investor wants (e.g., the investor
may want to own at least 20%
equity in your venture)
Desired Equity:
20% ownership
Step #3 Calculate the post-money
valuation; the $3 million raise
amount divided by the desired
equity ownership of 20%
Step #4 Calculate the resulting pre-money
valuation
Raise
Amount
₦30 Million
20%
Ownership
Post-Money
₦150 Million
Valuation
=
Raise
Amount
₦30 Million
Post Money
₦150 Million
Valuation
-
Pre-Money
₦120 Million
Valuation
=
negotiation

21. Valuation Method #3
The Discounted Cash Flow

22. The Discounted Cash Flow Method
The discounted cash flow (DCF) formula is equal to the sum of the cash flow in each future year, discounted to
today. That is – cash flow divided by one plus the discount rate (WACC) raised to the power of the period number.
Principle: A bird at hand is worth 2 in the bush

23. Terms can overshadow a valuation

24. My little $0.02 for you
1. Build something of real value.
(pivot, change it if you’re not sure; keep pivoting until you are sure)
2. Choose investors as much as they choose you.
(no free-loaders; if you have a choice – get more than money)
3. Make real money. Soon as you can.
(Sales is vanity; profit is sanity; cash is certainty)
4. Get help.
(I oversimplified this lecture)

25. Uzoma Nwagba
unwagba@gmail.com
@uzonwagba (Twitter)