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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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Presentation Transcript

So far l.jpg
So Far…

  • Recognizing and assessing opportunity

    • Pocd

    • Business models

    • E’ship – A process view

  • Financing The Venture

  • Managing uncertainty


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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


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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


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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


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Valuation There

  • 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


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Valuation (2) There

  • 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


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Pre And Post Money Valuations There

  • 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)


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The Simple Math There

  • Post-money – new money in = Pre-money

  • Pre-money + new money in = Post-money



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The MOST You Will Pay Is Not What You Hope To Pay There

  • The resulting valuation is a function of negotiation influenced by

    • competition for the deal / entrepreneur’s alternatives

    • Investors’ appetites, experiences, specific knowledge


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Cap Tables There

  • 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


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Goood decisions come from Therehaving good alternatives from among which to choose

The Lesson: