How to valuate your company, with Capricorn Venture Partners
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Finance for Startups
How to valuate your
company, with Capricorn Venture
Partners
Martin van Wunnik
Xavier Corman
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Sponsors
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Finance for Startups
Introduction
• Financial Valuation Basics
• Non Financials Aspects
• Capricorn Venture Partners
• Q&A
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This presentation is available for free:
http://www.slideshare.net/XavierCorman
http://www.slideshare.net/FinanceCoach24
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Who we are
Martin van Wunnik
Xavier Corman
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Financial Valuation Basics
Based on Balance Sheet
Based on Profit & Loss Statement
DCF – Discounted Cash Flows
with WACC – Weighted Average Cost of Capital
& IRR – Internal Rate of Return
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Based on Balance Sheet
Net Assets = Total Assets – Total long term debts
Adjusted Net Assets = : +/- adjustments
Provisions, historical values (land, buildings),
‘normalized salaries’, …
Liquidation value :
Not going-concern (social liabilities, C4, …)
Goodwill, Customers, Patent, etc…
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Based on Profit & Loss Statement
Multiples based on:
Sales
EBITDA
EBIT
Taxable Profit
Net Profit
www.impulse.de
•
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DCF – Discounted Cash Flows
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WACC
Weighted Average Cost of Capital
Time & Risk
The WACC is the cost of each capital component,
multiplied by its proportional weight,
and then summing them up.
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Cost of Equity:
Which elements ?
re = rf + β × (rm − rf)
Capital Asset Pricing Model (CAPM)
rf = risk-free rate
β = equity beta (volatile)
(rm − rf) = market risk premium
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IRR – Internal Rate of Return
IRR makes DCF = 0
Present value of all future cash flow
= initial investment (i.e. break even)
The higher IRR, the better
(when all other factors are equal)
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IRR (Internal Rate Return)
2
3
8
32
0
5
10
15
20
25
30
35
IRR 10 % IRR 25 % IRR 50 % IRR 100 %
Comparison of IRR
Year 1 Year 2 Year 3 Year 4 Year 5
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Evolution IRR/maturity
0%
20%
40%
60%
80%
100%
120%
Idea MVP 1st Clients Break-even Profit Sustainable growth
IRR
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0
50000
100000
150000
200000
250000
300000
350000
400000
0%
20%
40%
60%
80%
100%
120%
Idea MVP 1st Clients Break-even Profit Sustainable
growth
Idea MVP 1st clients Break-even TOTAL
Scenario 1 Capital increase 1.000.000 1.000.000
Shares investor 40%
Type of investor BA+VC
Cost of capital 100% 50% 35% 100%
Scenario 2 Capital increase 50.000 200.000 750.000 1.000.000
Shares investor 5% 15% + 4% = 23% 15%+13%+4%=31%
Type of investor FFF BA VC
Cost of capital 100% 50% 35% 41%
Cash need
IRR
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Investor’s motivation
Return on investment
Social aspect
Influence on the management of the company
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Pré-money & Post-money
2,000,000
500,000
VALUE
Pre-money Investment
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Valuation - What is dilution ?
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Start 1st Round 2nd Round
95%
81%
69%
5%
4%
4%
15%
13%
15%
VC
BA
FFF
Founder(s)
23. Partners-owned
20 people organisation, 20 years existence
Licensed asset manager – AIFMD compliant
Over € 250 million under management
Capricorn Venture Partners
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ICT
€ 15 million
CLEANTECH
€ 112 million
Quest for Growth
€ 106.8 million*
* December 31, 2012
Quest Cleantech Fund
€ 11.0 million*
* December 31 , 2012
HEALTHTECH
€ 42 million
Head office, Leuven, Belgium
24. DISCLAIMER
The views expressed in this presentation do not necessarily reflect
the views of the Capricorn Venture Partners or its investment
managers.
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25. HOW TO VALUE YOUR COMPANY?
Capricorn Venture Partners
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26. Venture capital reality
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Most capital get raised to address specific operational needs before
significant value has been created. In those instances the strategic
interest of new and existing investors to obtain or maintain a certain
percentage interest in the company prevails over the valuation models.
In most cases traditional valuation models become only relevant at
exit.
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29. Alternative Valuation Techniques
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• Peer comparison
• Technology value
• Pre-money versus post-money
• 1/3 sweat - 1/3 IP – 1/3 €’s
• Your value is 1 to 2 times the money you can raise
• The price a fool is prepared to pay
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30. Who is afraid of dilution?
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What do you prefer?
31. Pre-money versus post-money
• Always differentiate between pre-money and post-money
• pre-money = value of the company before the transaction
• post-money = value of the company after the transaction
• post-money = pre-money + capital increase
• post-money = invested amount / percentage in the company
• post-money = total number of shares after the transaction x price per share
• Always differentiate between actual and fully diluted shareholding
• fully diluted = including all shares resulting from conversion, stock
options, warrants, or any other rights related to securities of the company
• Use price per share and total number of shares fully diluted as the
legally binding values
• Keep it simple
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32. A simple cap table example
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price per share investment shares seed series A series B series C series C + SOP
€ € #
founders 100.000 1.000.000 80% 44% 28% 22% 20%
seed investor 1 250.000 250.000 20% 11% 7% 5% 5%
Series A investors 2 2.000.000 1.000.000 44% 28% 22% 20%
Series B investors 3 4.000.000 1.333.333 37% 29% 26%
Series C investors 4 4.000.000 1.000.000 22% 20%
stock option plan 509.259 10%
pre money 1.000.000 2.500.000 6.750.000 14.333.333
post money 1.250.000 4.500.000 10.750.000 18.333.333 20.370.370
total 10.350.000 5.092.593
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33. A simple cap table example - exit
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price per share investment shares series C + SOP exit multiple
€ € # €
founders 100.000 1.000.000 20% 15.709.091 157
seed investor 1 250.000 250.000 5% 3.927.273 15,7
Series A investors 2 2.000.000 1.000.000 20% 15.709.091 7,9
Series B investors 3 4.000.000 1.333.333 26% 20.945.455 5,2
Series C investors 4 4.000.000 1.000.000 20% 15.709.091 3,9
stock option plan 509.259 10% 8.000.000
pre money
post money 20.370.370 80.000.000
total 10.350.000 5.092.593 7,7
exit value 80.000.000
stock-options 10%
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35. Measuring non-financial value
• Separate KPIs/VIPs for the current year and towards exit
• 2013 points should reflect management KPI’s and our priorities
• By preference “measurable” or “achieved yes/no” points
• Not every cell needs to be filled
• Colour coded
• Blue : status at start of year/neutral/work in progress
• Green : realised
• Orange : critical but solution identified
• Red : critical no solution identified
• Italic : changed versus previous quarter
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36. Key Performance Indicators
& Value Inflection Points
2013 towards exit
Commercial Traction
• Conclude multi year supply contract with key
player
• Continue supply of product to + 5 clients
• Multiple supply contracts with yearly value
above € 500k
• Diversified customer portfolio with standard
products
Operations
• + 80% production yield
• Ready to order additional capacity
• ISO qualification
• Demonstrated high yield and fast ramp-up
• Second sourcing or dual location strategy in
place to reduce supply risk
Technology and IP
• 600 V grounded substrate demonstrated
• Solution identified and demonstrated at
product level for current issue
• Demonstrated capabilities on smaller scale
• Strong and broad IP portfolio, several patents
granted, strong patent application pipeline
Team
• VP Sales on board
• Strengthen team via active chairman,
executive chairman or alternative solution
• Conversion from a research driven team to a
commercial team with demonstrated industrial
experience
Finance
• Close bridge round
• Close series B financing to allow
• + € 5M sales
• Cost leadership allowing high margin business
Other • Operations in Asia or clear plan towards Asia
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37. THE PITFALLS FOR START-UPS
Capricorn Venture Partners
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38. 5 reasons why you will fail
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1. Don’t underestimate the time to market
4. It is not easy to convince a million consumers
5. In love and in business you have to let go sometimes
3. Big data is not a free for all
2. Beware of “It’s kind of a …”
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39. 2 reasons why you will be succesful
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Team IP strategy
40. Team
• Get business & entrepreneurial experience in the team
• Do not force researchers in a CEO role
• Build multidisciplinary teams (not all engineers!)
• International exposure and language skills
• Humans are not scalable
• Hiring new key persons that you have to pay more as the founders?
• No function in a start-up company is forever
• Keep you friends as friends
• Foresee “good leaver – bad leaver” conditions in shareholders
agreement and stock option plans
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41. IP strategy
• Define and challenge your IP strategy!
• Protection or freedom to operate?
• Does a patent has value without the associated business?
• Is a licence model a valid business model?
• Are you prepared for a patent due diligence by a US law firm in view
of a $ xxx million acquisition?
• Any change of control clauses in your contracts with
customers, suppliers, license agreements
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42. IP strategy is more than patents
• Trademarks
• Website
• Trade Secrets
• Contractual IP
• Employment and assignment of invention agreements
• Consultancy contracts
• Contracts with suppliers and customers
• License agreements
• Your network
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43. Importance of patents
• Patents are important in any phase of a VC investment !
• As an information source for deal selection
• Before making an investment
o Strong and clean IP
o Full ownership of patent(s) by the company remains the preferred model!
o Exclusive license with transfer rights and right/obligation to defend source
IP?
o FTO - Freedom to operate is key
• During the investment period
• At exit (most likely via M&A transaction)
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45. Pitching is a lot like dating
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1. Don’t order the most expensive thing on the menu
4. Have realistic expectations
5. Learn how to deal with disappointments
3. Be aware that you will be stuck with eachother for a while
2. Be yourself
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46. For further inquiries
Contact:
Tom Vanhoutte (tom@capricorn.be)
Capricorn Venture Partners
Lei 19/1, B-3000 Leuven, Belgium
Tel +32 16 284100 Fax +32 16 284108
http://www.capricorn.be
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