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Valuation, Financing, Cap Tables. So Far…. Recognizing and assessing opportunity Pocd Business models E’ship – A process view Financing The Venture Managing uncertainty. If You Can Grow w/out External Financing….

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so far
So Far…
  • Recognizing and assessing opportunity
    • Pocd
    • Business models
    • E’ship – A process view
  • Financing The Venture
  • Managing uncertainty
if you can grow w out external financing
If You Can Grow w/out External Financing…
  • You are much better off…no dilution, no outside investors to manage, no gun to your head on an “exit”
  • Requires: A business w/ low equity capital requirements
    • Highly capital efficient
    • Significant debt availability
if you do raise outside equity
If You Do Raise Outside Equity…
  • The higher the “inherent rate of return” on equity…
  • The higher the proportion of equity the entrepreneur(s) will be able to hold on to
investors generally back into a valuation don t start there
Investors Generally Back Into A Valuation, Don’t Start There
  • What is my best guess about terminal value and exit time
  • What is my best guess about future funding requirements and resultant dilution
  • What is the most I can afford to pay now i.e., what is the smallest % ownership I can walk away w/ and still get my required return
  • Implied or Implicit or Imputed Valuation is Different than “Calculated (NPV) Valuation”
  • Have you ever bought a share of stock?
  • Did you calculate the NPV of the firm’s cash flows?
  • I can still do the math: $/% = Implicit Valuation
valuation 2
Valuation (2)
  • We have generally done AFTER the fact as a way of calibrating progress, or lack thereof
  • Our simple model is admittedly flawed – doesn’t account for much but simple “common %” i.e., by dividing by % ownership we are ignoring any preference in return
pre and post money valuations
Pre And Post Money Valuations
  • The amount of money invested and the % bought determine a “Post Money” valuation e.g., the business is worth $__ after I put my money in
  • Example: If I buy 20% for $1 million the 100% must be worth $5 million
  • So, “before my money went in” it must have been worth $4 mil ($5 -$1)
the simple math
The Simple Math
  • Post-money – new money in = Pre-money
  • Pre-money + new money in = Post-money
the most you will pay is not what you hope to pay
The MOST You Will Pay Is Not What You Hope To Pay
  • The resulting valuation is a function of negotiation influenced by
    • competition for the deal / entrepreneur’s alternatives
    • Investors’ appetites, experiences, specific knowledge
cap tables
Cap Tables
  • Show the ownership stakes over time
  • Across multiple “rounds” of financing
  • Allow computation of implied valuation of the company and implied valuation of each owner’s shares over time