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Research Math. David Lamb Consultant, Target Analytics May, 2008. Today’s agenda. Private company math Public company affiliate math Foundation math - how to read 990s Real estate research Philanthropy capacity. Private Company Math. Closely Held Stock.

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research math

Research Math

David Lamb

Consultant, Target Analytics

May, 2008

today s agenda
Today’s agenda
  • Private company math
  • Public company affiliate math
  • Foundation math - how to read 990s
  • Real estate research
  • Philanthropy capacity

Closely Held Stock

  • When a company incorporates, it issues shares, known as “outstanding stock”
  • The value of the company is divided evenly among the shares
  • “Publicly held” stock vs. “closely held”
  • Finding the value of public company stock is easy
  • Finding the value of private company stock is difficult and expensive
why value a company
Why value a company?
  • The value of a company is influenced by the reason you’re asking the question
  • Reasons to value a private company:
    • To measure progress
    • To sell it
    • To raise capital from investors
    • Part of a divorce settlement
    • For a management buyout
    • For estate planning
    • For an employee stock ownership plan
    • For taxation
  • Change the purpose of the valuation and you change the stock price
  • Only fundraisers ask how it affects a gift
valuation in the real world
Valuation in the real world
  • Information typically is not available on private companies
  • The value of a company is not necessarily identical to the bottom line on the balance sheet
  • Companies with a negative cash flow can have a high value
  • Companies with a positive cash flow might have a modest value
valuation in the real world1
Valuation in the real world
  • To find out what a company is worth, sell it
  • Value is partly (sometimes mostly) subjective
  • Sometimes D&B provides a net worth figure
  • Read everything you can about your target company – it’s not just numbers
target company
Target Company
  • Iconic bookstore with three locations in the Denver metropolitan area
  • Annual sales are about $20 million per IAC Company Intelligence
  • Incorporated in 1973
  • Report lists 5 named officers
  • Prospect is the CEO and founder
  • No % of ownership is reported
ways to measure value
Ways to measure value
  • Book value
  • Price/earnings ratio (P/E)
  • Discounted cash flow
  • Comparison to similar companies of known value
    • Multiple: Known value/known annual sales
    • Apply the multiple to target company’s sales
comparable companies
Comparable companies
  • Find a similar public company
    • Downside: a public company is almost always valued higher than an otherwise equivalent private company would be
  • Find a similar private company that sold recently
    • Downside: the only commonly available metric is sales, and value is not always clearly tied to sales or even profit
  • Comparison is only method that is possible if you have no access to the financial statements and appraisals of the assets is comparable companies
comparison to public companies
Comparison to public companies
  • Yahoo Stock Screener (
    • Parameters that can be used
      • Industry (SIC or NAICS)
      • Sales
    • Enter relevant info for the target company
  • company search allows SIC search
    • If you don’t know the SIC, check
    • If your search turns up no companies, try replacing the right-hand numbers with zero’s: 5261 becomes 5200
    • Once you know the company name, look it up on your favorite public company site (e.g.
comparison considerations
Comparison considerations
  • Market Capitalization is one good measure of public company value
  • Your target company value is probably considerably less, even if otherwise equivalent
  • Public companies tend to be much larger than their private counterparts
  • Ratio of annual sales to market cap provides a multiple for the relevant industry
  • The more examples the better
  • Read the profile to see if the comparison company is similar in purpose to the target
  • If the public company has flat or negative earnings, it may still have value
comparison to other private co s
Comparison to other private co.s
  • Business Valuation Resources (
    • Pratt’s Stats
      • Database of over 9,500 private company sales from 1990 to present
      • Deal price ranges from $1 million to $14.4 billion
      • Updated monthly with about 100 transactions added / month
      • $595
    • Bizcomps
      • Database of over 9,500 private company sales from 1993 to present
      • 61% of the companies have gross revenues less than $500K
      • 18% of the companies have gross revenues over $1 million
      • $395
  • INC. Magazine’s Ultimate Valuation Guide
inc s 2008 valuation guide
Inc.’s 2008 Valuation Guide

Premium Zone

Median Sale Price

Discount Zone

Median Annual Sales

inc s 2008 valuation guide1
Inc.’s 2008 Valuation Guide

Median Sale Price

Median Annual Sales

bizstats rules of thumb
BizStats Rules of Thumb

business classifieds
Business Classifieds
pulling it all together
Pulling it all together
  • Company sales are reported to be $20 million
  • The one classified found for a bookstore supports a high ratio of value to sales
  • Inventory is unknown, but classified add suggests a possible inventory to sales ratio of 37.5%
  • Best guess of inventory: 37.5% x $20 MM = $7.5 MM
  • Alternate calculations:
    • Using BizStats (15% of sales + inventory)
      • $7.5 MM Inventory
      • $3.0 MM 15% of sales
      • $10.5 MM Total
    • Using Inc. Valuation Guide (43% of sales)
      • $8.6 MM
the things to find
The things to find
  • Compensation of directors
  • Stock holdings
  • Compensation of company leaders
  • Stock options
  • Other details (severance & retirement plans & more)
  • Current value of stock
  • Current stock holdings
compensation of directors
Compensation of Directors

Annual Compensation of Non-Employee Directors

Only non-employee directors are compensated for serving as directors of the Company. Pursuant to guidelines approved by the Board of Directors on recommendation from the Nominating Committee, for each fiscal year of service non-employee directors receive a retainer of $100,000, which may be in the form of cash or stock options, and $100,000 in equity compensation in the form of stock options. New non-employee directors first become eligible to receive the regular annual non-employee director compensation in the first full fiscal year after they join the Board of Directors. Stock options are granted under the 2005 Non-Employee Director Sub-Plan to the Starbucks Corporation 2005 Long-Term Equity Incentive Plan (the “Non-Employee Director Stock Plan”). The number of stock options granted is determined by dividing the dollar amount of compensation to be received in the form of stock options by the closing market price of the Common Stock on the grant date, multiplied by three. These stock options vest one year after the date of grant and have an exercise price equal to the closing market price of the Common Stock on the grant date. Stock options granted to non-employee directors generally cease vesting as of the date a non-employee director no longer serves on the Board. However, unvested stock options held by non-employee directors will vest in full upon a non-employee director’s death or “retirement” (generally defined as leaving the Board after attaining age 55 and at least six years of Board service).

compensation of non employee directors
Compensation of Non-Employee Directors

Fiscal 2006 Compensation of Non-Employee Directors

The table below sets forth, for each non-employee director, the amount of cash compensation paid and the number of stock options received for his or her service during fiscal 2006.

Non-Employee DirectorCash($)Stock Options (#)(1)

Barbara Bass     0       19,724  

William W. Bradley     100,000       9,862  

Mellody Hobson     0       19,724  

Olden Lee     0       19,724  

James G. Shennan, Jr.      100,000       9,862  

Javier G. Teruel     0       19,724  

Myron E. Ullman, III     0       19,724  

Craig E. Weatherup     0       19,724  

Gregory B. Maffei(2)     0       19,724  

(1)All stock options included in the table were granted on November 16, 2005, with an exercise price of $30.42 per share, and vested in full on November 16, 2006 other than with respect to Mr. Maffei, as explained below. (2)Mr. Maffei resigned from the Board of Directors in March 2006. Under the terms of the Non-Employee Director Stock Plan, the options listed in the table and granted to Mr. Maffei did not vest and were cancelled upon his resignation.

details details
Details, details

Initial Stock Option Grant for New Non-Employee Directors

Upon first joining the Board of Directors, non-employee directors are granted an initial stock option to acquire 30,000 shares of Common Stock under the Non-Employee Director Stock Plan. These options vest in equal annual installments over a three-year period and have an exercise price equal to the fair market value of the Common Stock on the date of grant. None of the directors in the table above was granted an initial stock option in fiscal 2006.

ownership of common stock
Ownership of Common Stock

The following table sets forth information concerning the beneficial ownership of Common Stock of the Company of (i) those persons known by management of the Company to own beneficially more than 5% of the Company’s outstanding Common Stock, (ii) the directors of the Company, (iii) the Named Executive Officers listed in the Summary Compensation Table on page 21 of this proxy statement, and (iv) all current directors and executive officers of the Company as a group. Information provided for Capital Research and Management Company and Sands Capital Management, LLC is based on the most recent Schedule 13G filings by those firms, each filed with the SEC on February 10, 2006. Information for all other persons is provided as of December 1, 2006. Except as otherwise noted, the beneficial owners listed have sole voting and investment power with respect to shares beneficially owned. An asterisk in the percent of class column indicates beneficial ownership of less than 1%.

beneficial ownership of stock
Beneficial Ownership of Stock

Name of Beneficial OwnerBeneficial OwnershipPercent of Class(1)

Capital Research and

Management Company     44,788,400 (2)     5.9  

Sands Capital

Management, LLC   42,254,297 (3)     5.6  

Howard Schultz     31,594,204 (4)     4.1  

James L. Donald     2,238,824 (5)     *  

Barbara Bass     662,794 (6)     *  

Howard P. Behar     917,581 (7)     *  

William W. Bradley     87,410 (8)     *  

Mellody Hobson     40,224 (9)     *  

Olden Lee     160,004 (10)     *  

>>>> snip <<<<<  

but it s all in the footnotes
But it’s all in the footnotes . . .

>>> snip <<<

(4) Includes 14,465,264 shares subject to options exercisable within 60 days of December 1, 2006. Also includes 124,144 shares of Common Stock held by the Schultz Family Foundation as to which Mr. Schultz disclaims beneficial ownership, and 6,756,164 shares of Common Stock that remain subject to a variable prepaid forward contract between Mr. Schultz and an unaffiliated third party. Under the variable prepaid forward contract, Mr. Schultz received a cash payment in March 2001 in exchange for a promise to deliver at the maturity of the contract up to 6,756,164 shares of Common Stock (as adjusted for stock splits since March 2001) or an equivalent amount of cash, in accordance with a formula set forth in the contract. On February 17, 2004, the contract was amended to revise the formula and extend the maturity date to March 16, 2007. As more fully discussed on page 18 of this proxy statement, also includes 3,394,184 deferred stock units representing stock option gains that were deferred in 1997 into an equivalent number of deferred stock units under the Company’s 1997 Deferred Stock Plan. In the event of a stock split, the number of deferred stock units is adjusted proportionately. On November 13, 2006, Mr. Schultz elected to re-defer the distribution of these stock units into an equal number of shares of Common Stock from December 21, 2007 until the earliest to occur of (i) his termination of employment with the Company and (ii) December 21, 2012, subject to any additional deferral elections made in accordance with the terms and conditions of the 1997 Deferred Stock Plan and approved by the Compensation Committee. 

(5) Includes 2,238,824 shares subject to options exercisable within 60 days of December 1, 2006. 

(6) Includes 628,228 shares subject to options exercisable within 60 days of December 1, 2006. Also includes 28,000 shares held indirectly by trust and 6,566 deferred stock units under the Non-Employee Director Deferral Plan. 

(7) Includes 880,000 shares subject to options exercisable within 60 days of December 1, 2006.

>>> snip <<<

compensation table
Compensation Table

Annual Compensation Long-Term Comp.

-------------------------------------------- ---------------------------

Other No. of

Annual Securities Other

Fiscal Salary Bonus Comp. Underlying Comp


James L. Donald     2006     978,846       2,000,000       26,666       966,469       2,100  

president and     2005       887,308       1,800,000       8,024       800,000       2,050  

CEO 2004       832,308       1,404,000 (5)   83,611       600,000        —

Howard Schultz     2006       1,190,000       2,380,000       950,521       966,469       278,224  

chairman     2005       1,176,269       2,380,000       683,831       1,000,000       243,460        

2004       1,179,154       2,490,00(6)     726,538       1,100,000       3,000  

MartinColes     2006       629,712       825,500       11,670       120,808       46  

president,     2005       607,885       786,656       6,892       100,000       300  

Starbucks Coffee     2004       265,385       530,000 (7)     502,294       400,000        —   International                    

once again it s all in the footnotes
Once again, it’s all in the footnotes

(2)As shown in the table below, “Other Annual Compensation” for some of the Named Executive Officers includes the aggregate incremental cost to the Company of one or more of: (A) personal use by executives, their families and invited guests of Company aircraft (“Aircraft”); (B) security services (“Security”); (C) relocation and temporary housing expenses paid to the Named Executive Officer (“Relo”) >>>snip<<<

stock option grants
Stock Option Grants

No. of

Securities Exercise Underlying Price per Expiration

Name Options Share Date


Donald 966,469 (1) $30.42 11/16/15

Potential Realizable Value at Assumed

Annual Rates of Stock Price Appreciation

Five percent ($) Ten percent ($)


18,489,494 46,856,008

and where are the details
And where are the details?

(2)Mr. Donald’s and Mr. Schultz’s options become exercisable in one 322,157 share increment on November 16, 2006 and two 322,156 share increments on November 16, 2007 and 2008, respectively.

exercises of options in the year in review
Exercises of Options in the year in review


Acquired Value

Name on Exercise (#) Realized ($) (1)


Donald 150,000 2,916,116

No. of Securities Underlying Unexer.

Options at Fiscal Year End

Exercisable Unexercisable


1,666,667 1,549,802

Value of Unexercised In-the-Money Options at FY End

Exercisable Unexercisable


$28,459,369 $11,774,513

did you notice that 1 yes that one
Did you notice that (1)? Yes – that one . . .

(1)Value realized is calculated by subtracting the aggregate exercise price of the options exercised from the aggregate market value of the shares of Common Stock acquired on the date of exercise.

meeting your public company prospect just as she or he has left a job
Meeting your public company prospect just as she or he has left a job?

Severance Arrangements

None of the Company’s executive officers, including the Named Executive Officers, has a severance arrangement with the Company pursuant to which any of them would be entitled to receive a severance payment in the event he or she is terminated by the Company. As noted above, since the beginning of fiscal 2005, each of Messrs. Donald, Coles, Casey and Pace entered into a new employment letter agreement with the Company which removed his severance protection.

retirement plans
Retirement plans

The Walt Disney Company Notice of 2007 Annual Meeting and Proxy Statement

The table below illustrates the total combined estimated annual benefits payable under these retirement plans to eligible salaried employees for various years of service assuming normal retirement at age 65 and assuming all years of service are after 1984 (benefits are less for service in or before 1984). The table illustrates estimated benefits payable determined on a straight-life annuity basis. There is no offset in benefits under either plan for Social Security benefits.

estimated annual benefits under retirement
Estimated Annual Benefits Under Retirement

Average Annual

Base Comp. Highest

Five Consec. Yrs. 15 20 25 30


$250,000 $ 74,319 99,121 124,031 148,800

$1,500,000 $435,257 580,371 725,594 870,675

As of December 1, 2006, annual payments under the Disney Salaried Retirement Plan and the Amended and Restated Key Plan would be based upon an average annual compensation of $1,917,308 for Mr. Iger, $913,866 for Mr. Staggs, $786,663 for Mr. Braverman, $329,839 for Mr. Mayer and $407,712 for Ms. McCarthy. Mr. Iger has seven years, Mr. Staggs has seventeen years, Mr. Braverman has four years, Mr. Mayer has nine years and Ms. McCarthy has seven years of credited service.

enough yet there s more
Enough yet? There’s more.
  • Other spots to find informationS1, S4, Forms 3 through 5
  • When your prospect is no longer with a public company
  • When your prospect sells her privately-held company to a public company
  • And . . .?
public company resources
Public Company Resources

U.S. Securities and Exchange Commission (EDGAR)

Tutorial, description of forms, link to regulatory actions

10K Wizard



Big Charts

how corporation and foundation giving fits into a mature nonprofit s fund raising plan
How corporation and foundation giving fits into a mature nonprofit’s fund-raising plan:

For more details, visit the Giving USA Foundation™ site at

Gifts from corporations and foundations (16.8%±)

Gifts from people - individuals & bequests (about 83.2%±)


resources how to read the 990 pf
Resources – how to read the 990-PF
  • GuideStar 990-PF tutorial
  • The Foundation Center 990-PF FAQs
  • Form 4506-A: Request for Public Inspection or Copy of Exempt or Political Organization IRS Form

Tip: Go to the IRS Web site at

Print a blank 990-PF and then highlight the lines and sections that matter to you.

types of foundations
Types of foundations
  • Public charities file 990s
  • Private foundations file 990 PFs

Year covered, contact information (including telephone number) and fair market value: p. 1

grants paid part xv line 3 section a
Grants paid: Part XV, line 3, section a

Future grants to be paid: Part IV, line 3, section b

free foundation information
Free foundation information
  • GuideStar -
  • IRS Search for Charities,,id=96136,00.html
  • FundsNet
  • GrantSmart -
  • AG charities databases
  • Your local library (see Foundation Center list of cooperating collections at
  • CharityVillage (Canadian foundations) -
  • GuideStar UK
real estate as a wealth indicator
Real estate as a wealth indicator

First, a few observations:

  • Prospect researchers are not real estate appraisers.
  • Researchers do not evaluate real estate holdings expecting a prospect to give a home to a nonprofit (though that might happen).
  • It is nearly impossible to learn about all the real estate some prospects hold. Therefore, it is likely that the estimates made based on real estate holdings are low.
  • Real estate is often the only asset that a researcher learns about a potential prospect.
a few real estate definitions
A few real estate definitions
  • Market Value – the price determined by a willing buyer and a willing seller
  • Assessed Value – the value determined for tax assessment purposes
  • Appraised Value – the value determined by an appraisal professional, usually based on more than one method of valuation (i.e. replacement cost or value as a rental property)
  • Taxpayer’s Name – usually the owner of the property, sometimes the same as the individual’s given name, but can be the name of a company, partnership, trust or other entity
free real estate research resources
Free real estate research resources
  • Portico – directory of assessors with online access
  • Christina’s Tax Assessor Database – collection of multipliers used for assessments
  • Zillow – market value estimates
  • Bank of America Real Estate Center – market value estimates
philanthropic capacity bringing it all together
Philanthropic Capacity: Bringing it all together

First, a few definitions (and a word or two about ranges)

  • Total philanthropic capacity (TPC) is an estimate of the amount an individual will or can give to all charities over 5 years.
  • Net worth is the value of an individual's assets minus their expenses or debts.
  • Known assets are the financial points of information available to prospect research. This term is often used in place of “net worth” since researchers never have enough information to accurately estimate net worth (all assets minus all expenses).
  • Ask Rating is the solicitation amount appropriate for a specific project, based on the conclusions of the development officer who has been cultivating the donor for that major gift.
  • You decide. Base your decision on what your team, your database, and your work can manage.
  • For our purposes today, we will anchor ourselves to a number in the ranges. That does not mean we are suggesting you do the same.
  • Remember: Your conclusions will be best informed by your experiences.
fund raising adages about net worth and philanthropic capacity
Fund-raising adages about net worth and philanthropic capacity:
  • "Salary represents 10 percent of net worth."
  • "Stock holdings represent 30-35 percent of net worth."
  • "Real estate holdings represent 20-25 percent of net worth."
  • "Prospects have the capacity to give about 5 percent of net worth (or known assets) to charity (in a single gift or over five years)."
  • "An annual fund gift represents about 10-20 percent of a prospect’s major gift capacity."
  • "Prospects have the capacity to give 10 percent of the value of stock options of $1 million or more to charity."
tpc based on net worth
TPC based on net worth
  • Philanthropic capacity is 2-5% of estimated net worth

Households with a net worth of $1M-$10M, 2001 IRS data, published in 2006

a splash of reality
A splash of reality
  • Adjusting the estimate:
    • Is the prospect an entrepreneur?
    • How mature is the business?
    • Is the prospect a farmer?
    • Is the prospect an investor?
  • Your task: Develop a gut feel for the prospect’s situation and adjust appropriately
what researchers have to be tuned into
What researchers have to be tuned into
  • Where the wealth began
  • Life stage
  • Degree of wealth
  • Gender
  • Location, location, location
capacity and private company ownership
Capacity and private company ownership

Example: A 55-yr. old prospect is a 50% owner in a privately held company with an estimated value of $10 million

Estimated company value ($10 million)

x ownership percentage (50%)

÷ estimated proportion of net worth (10% (IRS says 8%))

x age multiplier (3%)


= Total Philanthropic Capacity ($1.5 million)

capacity and salary
Capacity and salary
  • Salary corresponds to cash on IRS chart but…
  • Much of it is spent – doesn’t stay in portfolio
  • Premise: Net Worth can be estimated at 10 times annual salary.

Annual Salary + Bonus

x 10

x giving percentage (or age multiplier)


= Total Philanthropic Capacity

Example: Prospect earned $250,000 in salary and a bonus of $50,000 last year.

($250,000 + $50,000) x 10 x 5% = $150,000

capacity and stock holdings
Capacity and stock holdings

Example: A 58-yr. old with $17 million in directly held stock. $5 million of the indirectly held stock is owned by the spouse, and $5 million is owned by trusts for children and grandchildren

Stock holdings ($22 million)

÷ portion of estate from IRS (20%)

x age multiplier (3%)


= Total Philanthropic Capacity ($3.3 million)

Remember: the insider stock is probably only a part of the prospect’s portfolio!

capacity and real estate holdings
Capacity and Real Estate Holdings

Example: A 63-yr old owns home with an estimated value of $1.5 million, a vacation home worth $1 million, and business property valued at $500,000

Real estate value ($3 million)

÷ portion of estate from IRS (25% (actually 23%))

x age multiplier (4%)


= Total Philanthropic Capacity ($480,000)

other capacity formulas
Other capacity formulas
  • Consistent annual giving x 10 or 20 = TPC
  • Total private foundation giving x 5 (years) = TPC

Example: $100,000 gift x 5 (years) = $500,000 (TPC)

  • $5,000 in political campaign donations in a cycle = $100,000 in philanthropic capacity
other capacity indicators
Other Capacity Indicators
  • Collections
  • Hobbies
  • Toys
  • Lifestyle
  • Philanthropies
who is difficult to capacity rate
Who is difficult to capacity rate?
  • Downsizers
  • Inheritors
  • Stumpers
  • Internationals
  • Who else?
capacity rating chore list
Capacity Rating Chore List
  • Establish a philosophy. Share it with your team (via a white paper or a special meeting). Listen to their feedback. Make a plan for dealing with their objections.
  • Establish a capacity rating approach for your entire team. Decide which formulas work for your team.
  • Establish a process, including back-up. Be prepared to be challenged.
  • Prepare to review capacity ratings as new information emerges through contacts and cultivations.
  • Be consistent.
  • Keep up with trends. Talk to other researchers. Adapt as changes unfold.
capacity rating resources
Capacity Rating Resources
  • “Capacity Ratings;” presented by Lisa Howley, 2004 APRA Conference.
  • “Understanding Compensation Practices & Estimating Income.” presented by Jill Meister and Debra Westerberg; 2005 APRA Conference.
  • “Assessing the Value of Real Estate;” by Cliff Anderson; 2005 APRA Conference.
  • “Estimating Net Worth: One Organization's Search for Truth;” University of Virginia Research Department; 1998;
  • “How Much is that Donor in Your Records?” by Roger R. Millar; CASE Currents; 1995.