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B2B Softwaare Days: Startups – Investment, Valuation and Exit

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B2B Softwaare Days: Startups – Investment, Valuation and Exit

  1. 1. Startups – Investment, Valuation and Exit www.i5invest.com
  2. 2. 2 | 28/04/2015 Experience of the founder team Product with a Unique Selling Proposition Traction / Momentum Consistence / completeness of business model Scalability of business model Market potential and competition Business Plan and capital required External proof of concept What can Angel contribute in addition to capital? Fair valuation (for the region) with reasonable stake Ability to work together over the investment period Exit / liquidation event Issues from an Angel Investor’s perspective 28/04/2015 Traffic Engagement Registered users Active users Revenues Profitability Pre-seed & seed investment
  3. 3. 3 | 28/04/2015 Issues from a VC’s perspective 28/04/2015 Venture Capital Firm Portfolio (based on risk / return profile) FailureIPOTrade Sale  What is the best exit option for the company?  What price can be realized? “Invest, Hold and Exit”  What stage is the company currently at?  Does the company fit into existing portfolio?  How much is the company worth now?  How much will the company be worth at exit? Main value drivers for VCs are Entry Value, Exit Value and Investment Horizon Investment (Series A, B, … ) Company 1 Company 2 Company ... Company n
  4. 4. 4 | 28/04/2015 An overview of valuation approaches VC Method Asset based Valuation Scoring Method Entry / Exit Value and investment horizon Bottom up valuation of assets → sum of the parts Benchmarking target vs. regional market average Entry Exit IRR Investment Horizon Tangible Assets NWC Intangible Assets GW TotalValue Scoring Categories Weighting Factor Bench- mark Total Value x = Weighting …and of course there are the traditional approaches such as Discounted Cash Flow Valuation and Multiple Valuation
  5. 5. 5 | 28/04/2015 Venture Capital Method The VC approach reflects the business model of invest, hold and exit Pre-money value Post-money value Capital raised Exit Value Discount Rate = Expected IRR Exit Value drivers Revenue potential Profitability: e.g. EBITDA Multiple based on revenues / EBITDA Competitive bidding process Investment horizon: 5 – 8 years Terminal Value (EUR in m) 20,0 IRR 65% Investment Horizon (yrs) 6 Post-money value 1,0 Capital raised 0,3 Pre-money value 0,7 Share in the Company 30% Cash on Cash Multiple 20 Efficient exit process
  6. 6. 6 | 28/04/2015 All approaches provide a great framework… …in the end supply and demand for investment opportunities drive the valuation (Startup)investment opportunities Investors(AngelsandVCs) (Deals) experience and points of reference for valuation Industry knowledge Investor network Supply Demand
  7. 7. 7 | 28/04/2015 What is happening in venture markets? 4/28/2015 Equity investment in venture-backed companies – Europe vs US Source: VentureSource, Capital IQ & i5invest Analysis Development of average investment in Internet Software 0 1 2 3 4 5 6 7 8 Europe and USA USA Europe Private Placements per region - Internet Software (money raised) Q3 2014 Q4 2014 +20% +38% -30% ($m) • Investments in venture-backed companies much higher in the US than in Europe • Investments in venture-backed companies in the US is up 77% compared to 1Q12, in Europe only 57% • 3Q14 vs 4Q14: USA → 23% increase; Europe → 29% decrease • The number of investment in internet software companies decreased, whereas the average money raised increased to almost $8m • Average money raised through private placements decreased 30% in Europe, whereas in the US it increased by 38% in 4Q14
  8. 8. 8 | 28/04/2015 +18% +13% +15% +11% +33% +12% What is going on in the financial markets? Development of trading multiples in Application Software Development of trading multiples in Data Processing / Outsourced Services Source: Capital IQ & i5invest Analysis Enterprise Value / Sales • In 2014, companies in APAC showed a higher valuation than Europe for the first time in the last three years • Data Processing companies in APAC trade at a much lower level than their peers in Europe and North America • Companies in North America significantly higher valued than in Europe and APAC • EV/Sales Multiples in all three areas increased over the last three years Enterprise Value / Sales
  9. 9. 9 | 28/04/2015 What is happening in transaction markets? 4/28/2015 Development of transaction multiples in Application Software* Development of transaction multiples in Data Processing & Systems Software* Enterprise Value / Sales Enterprise Value / Sales * Adjusted for outliers Source: Capital IQ & i5invest Analysis • Transaction multiples in North America and Europe increased (slightly) • The EV/Sales multiple in APAC increased significantly in 2014 • This was driven by the 1.5bn USD acquisition of AutoNavi Holdings by Alibaba (EV/Sales 8.2x) • Transaction multiples in Europe moved sideways • The EV/Sales multiples in North America and APAC increased significantly (especially in 2014) • One of the highest valued US transactions in 2014 was the acquisition of Mandiant by FireEye (EV/Sales 8.1x)
  10. 10. 10 | 28/04/2015 COMPANY Partners Customers Competitors Suppliers Outside current product focus Outside current industry focus Outside current geography New business? Business and Corporate Development – an integrated process Strategic Preparation Strategic Business / Corporate Development Corporate Development / M&A COMPANY Potential Leads Long list Short list 3 months 3 - 6 months 6 months Define current positioning Establish right first point of contact Assure efficient and competitive process Phase 1 Preparation Phase 3 Due Diligence Phase 2 Reach Out Phase 4 Negotiation Exit
  11. 11. 11 | 28/04/2015 Exit Process is the final stage  Deepen company and market analysis  Financial model and business plan  Preparation of transaction documents  Indicative valuation  Long- and shortlisting of potential buyers  Contacting short list with teaser and NDA  Distribution of transaction documents after receipt of signed NDAs  Preparation of management presentation  Setup of data room  Selection of bidders  SPA negotiation with preferred buyer(s)  Development of final transaction structure (share/asset deal)  Signing of SPA  Receipt of approvals  Closing  Management presentations and site visits  Coordinating due diligence, expert meetings and Q&A session  Assessment of binding offers / term sheets  Selection of preferred buyer(s) Phase 1 Preparation Phase 2 Reach Out Phase 3 Due Diligence Phase 4 Negotiation Key steps Key success factors  Understanding the dynamics of transaction environment  Business development to assure Fit for Exit  Establishing the right first point of contact (be it business or corporate development)  Creating competitive process with several potential bidders  Negotiation tactics and mitigating reps & warranties  Leverage different stakeholders  Bridging the value gap  Comprehensive preparation of company documents and data  Fast, streamlined and efficient due diligence with several bidders Efficient sell side process to maximize returns
  12. 12. Thank you! OUR EUROPE OFFICE i5invest Beratungs GmbH (CEO Herwig Springer) Spengergasse 37-39 A-1050 Vienna Austria/Europe OUR US OFFICE i5growth Inc. (CEO Markus Wagner) 460 S California Ave, #304 Palo Alto, California 94306 United States Herwig Springer CEO Corp. Dev., M&A h.springer@i5invest.com +43 650 530 8976
  13. 13. 13 | 28/04/2015 What we do – Our Services WE ARE LONG TERM PARTNERS (through all stages) START-UP MENTORING SEED FUNDING CORPORATE DEVELOPMENT / M&A ADVISORY We focus on max 2 new companies per year – we aren’t spray & pray investors. We focus on sector expertise, mostly strong IP/technology, international/US markets, rarely copycat business models
  14. 14. 14 | 28/04/2015 Who we are – Our Team Founded 2007, Vienna - partner i5growth Inc. in Palo Alto 28/04/2015 - PARTNERS & FRIENDS – OUR ECOSYSTEM- Herwig Springer CEO Corp. Dev., M&A h.springer@i5invest.com +43 650 530 8976 Patrick Prokesch Director Corp. Dev., M&A p.prokesch@i5invest.com +43 676 303 4854 Paul Weinberger Partner Markus Wagner Chairman of Advisory Board, CEO - i5growth Inc./ USA Alexander Igelsboeck Partner Martin Brunthaler Partner Bernhard Lehner Partner Vlad Gozman Partner AdvisoryBoard/ Partner Partner Johannes Raidl Director Corp. Dev., M&A j.raidl@i5invest.com +43 664 167 7577 Georg Novak Executive Assistant g.novak@i5invest.com +43 676 841 282 150
  15. 15. 15 | 28/04/2015 Portfolio Overview #inspire, #innovate, #incubate, #invest, #internationalize

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