Valuation Concepts & Issues www.eslamibidgoli.com

1. ValuationConcepts & Issueswww.eslamibidgoli.com Saeed Eslami Bidgoli

2. Misconceptions about Valuation • Myth 1: A valuation is an objective search for “true” value • Truth 1.1: All valuations are biased. The only questions are how much and in which direction. • Truth 1.2: The direction and magnitude of the bias in your valuation is directly proportional to who pays you and how much you are paid. • Myth 2.: A good valuation provides a precise estimate of value • Truth 2.1: There are no precise valuations • Truth 2.2: The payoff to valuation is greatest when valuation is least precise. • Myth 3: . The more quantitative a model, the better the valuation • Truth 3.1: One’s understanding of a valuation model is inversely proportional to the number of inputs required for the model. • Truth 3.2: Simpler valuation models do much better than complex ones. Saeed Eslami Bidgoli

3. Approaches to Valuation Saeed Eslami Bidgoli

4. The “Hierarchy of Values” Strategic Value Control Value MarketableMinority InterestValue Non-MarketableMinority InterestValue Saeed Eslami Bidgoli

5. Issues to Concernc Saeed Eslami Bidgoli

6. Valuation Methodologies “Exit” Options Affect the Appropriate Methodology/Premise of Value • Strategic Buyer • Synergistic value (transactions and DCF) • Financial Buyer (Private) • Control value (DCF, public comps, transactions) • Public Acquirer • EBITDA and earnings multiples, interested in earnings accretion/dilution • IPO/Post-IPO • P/E multiples, sometimes FCF or revenue multiples • Intrinsic Value • DCF Saeed Eslami Bidgoli

7. Valuation Methodologies Other Factors That Affect Valuation • Management Team • Many VC’s say they would rather have a “C” idea with an ‘A” management team rather than an “A” idea with a “C” management team. • Technology/Product Development • Does the technology/product provide a competitive advantage? • Market Potential/Attractiveness • What is the expected market growth? • What does the competitive landscape look like? • Supply and Demand for Capital Saeed Eslami Bidgoli

8. Sizing Up the Companies Key Questions to Ask During the Process • Can a good working relationship be established with the management team? • How much relevant operational experience does the management team possess? • What type of capital requirements will be necessary to develop the products and grow the company? • What is the market size in terms of annual revenue, growth rate and growth drivers? • Who will be the customers of the products/services and how will the company distribute its products? • Is the Company’s business model sustainable? • Who will be on the board of directors? Saeed Eslami Bidgoli

9. Which approach should you use? Depends upon the asset being valued.. Saeed Eslami Bidgoli

10. And the analyst doing the valuation…. Saeed Eslami Bidgoli

11. Sizing Up the Capital Structure Concerns and Considerations • What Types of Financial Securities Should be Held? • Convertible Preferred Stock • Most common form of investment for VC’s • Liquidation preference can be valuable especially in the early-stages of the company • Participating Preferred Stock • Typically used when the most likely exit is not a highly valued initial public offering but the sale of the company • Receive principle plus dividends ahead of the proceeds to common shareholders as well as participate in equity proceeds • How Much Dilution Can be Expected? • What Will be the Impact of Stock Options? Saeed Eslami Bidgoli

12. Accountant’s Review • Discounted Cash Flow Valuation • Free Cash Flows • Discount Rate • Price-Multiple Models Saeed Eslami Bidgoli

13. Thanks for your attention Comments or Questions? Saeed Eslami Bidgoli