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Formulate an Offer. Stephen Lawrence and Frank Moyes Graduate School of Business University of Colorado Boulder, CO 80309-0419. Course Outline. This Week. Valuation and Offer. Valuation. Use VC Method to value company Assume IPO or acquisition Five year horizon (max)

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Formulate an offer

Formulate an Offer

Stephen Lawrence and Frank Moyes

Graduate School of Business

University of Colorado

Boulder, CO 80309-0419





Valuation
Valuation

  • Use VC Method to value company

    • Assume IPO or acquisition

    • Five year horizon (max)

    • Use “reasonable” PE ratio to estimate FV

    • Use “reasonable” discount rate

    • Calculate equity give-up

  • Develop offer consistent with value


Price earnings pe ratio
Price-Earnings (PE) Ratio

  • PE = 15

    • Long term average of stock market

  • PE > 15

    • Hot sectors of the economy with rapid growth

  • PE < 15

    • Mature sectors of economy, slow growth

  • Look for “comps” in the market


Discount rates

Seed capital

80 to 100%

Startup financing

50 to 70%

First-stage financing

40 to 60%

Second-stage financing

30 to 50%

Bridge financing

20 to 35%

Restart financing

variable

Discount Rates


Factors affecting discount rates
Factors Affecting Discount Rates

Total Discount Rate

Risk of failureadjustment

Cash Flow Adjustment

Value ofVC advice

Value Added

Investmentnot liquid

Justifiable Discount Rate

Liquidity

Marketsensitivity

Systematic Risk

Risk-freeinvestment

Base Rate

Seed Stage 1 Stage 2 Bridge IPO

Sahlman, A Method for Valuing High-Risk, Long-Term Investments, teaching note, HBS 9-288-006.


Offer
Offer

  • Use valuation to determine offering

  • Offer percentage of ownership consistent with investment and future value

  • For investor, report

    • IRR

    • ROI

    • Future Value




Executive summary1

Critically important

First (and only?) chance to sell your concept

Two pages (max)

Sections match major parts of plan

Cut and paste from the rest of the plan

Rewrite for logic and clarity

Organization

Introduction

Company Overview

Product/Service Description

Industry and Marketplace Analysis

Marketing Strategy

Operations

Development

Financials

Offering

Executive Summary


Alternative executive summary

Single page

Selling vs. Summary

Excite quickly

VC’s have less time, less patience

Headings

Opportunity

Solution

Competitive Advantage

Process

Positioning

Revenue

Financial

Management

Alternative Executive Summary


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