Valuation of Pre-Commercialized Companies

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Information about Valuation of Pre-Commercialized Companies

Published on February 5, 2014

Author: gerardbuckley



This is a presentation given to a group of investors from Maple Leaf Angels at Maple Leaf Angels Lunch and Learn Seminar Series.

VA L U AT I O N o f P R E - C O M M E R C I A L I Z E D C O M PA N I E S


M L A C O N N EC T S Our mandate is to connect experienced accredited investors, and the brightest, most passionate entrepreneurs in an effective investment process. | | 416.646.6235 | @mapleleafangels

Who Am I • I am Gerard Buckley – Founder & CEO of Jaguar Capital an Advisory Practice for Growth Companies in Governance, Financial Management & Financial Structuring – Chairperson of Board of Directors, Maple Leaf Angels Corporation & Investor in eight early stage companies – Certified Corporate Director of the Institute of Corporate Directors – Previously Entrepreneur in Residence with Incubes (An Internet Company Accelerator) – Member of Small & Medium Enterprise Committee of The Ontario Securities Commission – Investment Committee of MSV University, Halifax, NS – 32 yr. Career with Scotia Capital as a Financial Risk Management Advisor to Fortune 200 Companies: Rogers, Irving Group, Empire Co., Four Seasons, Bruce Power, OPG, Province of Ontario, Ford etc. | | 416.646.6235 | @mapleleafangels 4

VA L U AT I O N AGREEMENT OF PRICE TO BUY AND SELL | | 416.646.6235 | @mapleleafangels

INTRODUCTION The Valuation of a company is the price to buy the entire company whether it is public or private. It is usually quoted in the price of a share; however, for a private company you need to know the total value usually stated as PreMoney Valuation before investment and Post- Money Valuation or Market Capitalization after investment. | | 416.646.6235 | @mapleleafangels

F M V- FA I R M A R K E T VA L U E ``The price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arms length in a open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts.`` | | 416.646.6235 | @mapleleafangels

R E V E N U E C O M PA N I E S 1. 2. 3. 4. 5. 6. 7. Multiple of EBITDA Discounted Cash Flow Comparable transaction method Book Value Total Enterprise Value Market Value Liquidation Value: Forced or Orderly | | 416.646.6235 | @mapleleafangels

B U S I N E S S VA L U AT I O N S • Every valuation and Pricing is unique • In a M&A Transaction price or valuation comes down to the strategic value the acquirer brings to the transaction & the portion paid to the target • 65% of business owners don’t know what their company is worth • 85% have no exit strategy • 75% of their worth is tied up in their business | | 416.646.6235 | @mapleleafangels

VA L U AT I O N – P R E - C O M M E R C I A L I Z AT I O N | | 416.646.6235 | @mapleleafangels

I N V E S TO R E X P E C TAT I O N S • , the most active M&A buyer paid < 20 mil with <20 people for 90 % of it`s targets • An Angel Investor has an expectation of 10X • Survey conducted among USA angel groups by Bill Payne in 2012. Average Pre-Money valuation is 2.96m & Median is 2.75m an increase over`11 • The usual range of valuation for an pre- commercialized company 1 to 3 mil • A Convertible Debenture (last weeks lunch and learn) is a way to take the valuation discussion off the table | | 416.646.6235 | @mapleleafangels

VA L U AT I O N – HOW SUBJECTIVE IS IT? | | 416.646.6235 | @mapleleafangels

I N V E S TO R E X P E C TAT I O N S • At the end of the day valuations are subjective • Many VC`s will not discuss investment until a price is set • A high valuation may create an orphaned financing or even worse a future down round • Businesses are sold not bought, a business should be preparing for an exit from the start • A company needs to understand the potential buyers universe (Financial vs. Strategic buyers) and what they are looking for. | | 416.646.6235 | @mapleleafangels

I N V E S TO R E X P E C TAT I O N S • A USA with concerning terms will have negative pressure on valuation • Valuation is calculated on a Fully Diluted Basis – all options, warrants, convertible debentures, vesting, etc. are converted for the purposes of presenting the `Capitalization Table` referred to as `Cap Table` • Valuation is caveat emptor – buyer beware. More investors have lost more money because they overpaid for a stock than has been lost due to fraud. (Warren Buffett and Benjamin Graham = Value Investing) • Concentrated sales is negative for valuation • Bootstrapping and obtaining traction will assist a company build valuation | | 416.646.6235 | @mapleleafangels

P R E - C O M M E R C I A L I Z AT I O N M E T H O D S 1. Venture Capital Method (ARI) 2. Scorecard Method (David Berkus) 3. Risk Factor Method (ARI) 4. The Shamrock Method (Buckley) | | 416.646.6235 | @mapleleafangels

V E N T U R E C A P I TA L M E T H O D | | 416.646.6235 | @mapleleafangels

SCORECARD METHOD Management - quality team in place, except sales Opportunity - appears to be a huge opportunity Product – disruptive technology, prototype done Sales – team not in place , channels unclear Competition – many small players, lack technology Other Factors – foreign Market, partners | | 416.646.6235 | @mapleleafangels

R I S K FA C TO R M E T H O D • • • • • • • • • • • Stage of the business Legislation/Political risk Manufacturing risk Sales and marketing risk Funding/capital raising risk Competition risk Technology risk Litigation risk International risk Reputation risk Potential lucrative exit | | 416.646.6235 | @mapleleafangels

SHAMROCK METHOD • Credit for Actual Invested Capital (no sweat equity) • Up to 250K for Management Team • Up to 250K for Proof of Concept or Product Validation • Up to 250K for Disruptiveness of Technology & Patents • Up to 250K for Business Model, pricing, etc. • Up to 250K for other including advisors, governance, financials, company infrastructure, etc. • Up to 250k for go to market strategy, traction, growth… • Credit for 2 years of revenue run rate up to 3 years | | 416.646.6235 | @mapleleafangels

Contact Information Gerard Buckley, BBA, FICB, ICD.D President and CEO Jaguar Capital Inc. (C) 416-884-9522 (W) 416-646-6789 Twitter: @jaguarcapital Twitter: @gerardbuckley Slideshare: Jaguar Capital | | 416.646.6235 | @mapleleafangels 20

THANK YOU M L A S P O N S O RS & G OV E R N M E N T PA RT N E RS | | 416.646.6235 | @mapleleafangels

C O N TA C T | | 416.646.6235 | @mapleleafangels

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