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CapricornVenturePartners
How to value your company?
Finance for Start-Ups May 28, 2013
CAPRICORN VENTURE PARTNERS
In short
2 All rights reserved
Partners-owned
20 people organisation, 20 years existence
Licensed asset manager – AIFMD compliant
Over € 250 million under management
Capricorn Venture Partners
3 All rights reserved
ICT
€ 15 million
CLEANTECH
€ 112 million
Quest for Growth
€ 106.8 million*
* December 31, 2012
Quest Cleantech Fund
€ 11.0 million*
* December 31 , 2012
HEALTHTECH
€ 42 million
Head office, Leuven, Belgium
DISCLAIMER
The views expressed in this presentation do not necessarily reflect
the views of the Capricorn Venture Partners or its investment
managers.
4 All rights reserved
HOW TO VALUE YOUR COMPANY?
Capricorn Venture Partners
5 All rights reserved
Venture capital reality
6
Most capital get raised to address specific operational needs before
significant value has been created. In those instances the strategic
interest of new and existing investors to obtain or maintain a certain
percentage interest in the company prevails over the valuation models.
In most cases traditional valuation models become only relevant at
exit.
All rights reserved
Conventional Valuation Techniques
7
• Discounted cash flow
• Price / earnings ratio
• Price / EBITDA ratio
• Price / sales ratio
All rights reserved
Issue
8
Cash flow, earnings, EBITDA, sales, … ?????
All rights reserved
Alternative Valuation Techniques
9
• Peer comparison
• Technology value
• Pre-money versus post-money
• 1/3 sweat - 1/3 IP – 1/3 €’s
• Your value is 1 to 2 times the money you can raise
• The price a fool is prepared to pay
All rights reserved
Who is afraid of dilution?
10 All rights reserved
What do you prefer?
Pre-money versus post-money
• Always differentiate between pre-money and post-money
• pre-money = value of the company before the transaction
• post-money = value of the company after the transaction
• post-money = pre-money + capital increase
• post-money = invested amount / percentage in the company
• post-money = total number of shares after the transaction x price per share
• Always differentiate between actual and fully diluted shareholding
• fully diluted = including all shares resulting from conversion, stock options,
warrants, or any other rights related to securities of the company
• Use price per share and total number of shares fully diluted as the
legally binding values
• Keep it simple
11 All rights reserved
A simple cap table example
12
price per share investment shares seed series A series B series C series C + SOP
€ € #
founders 100.000 1.000.000 80% 44% 28% 22% 20%
seed investor 1 250.000 250.000 20% 11% 7% 5% 5%
Series A investors 2 2.000.000 1.000.000 44% 28% 22% 20%
Series B investors 3 4.000.000 1.333.333 37% 29% 26%
Series C investors 4 4.000.000 1.000.000 22% 20%
stock option plan 509.259 10%
pre money 1.000.000 2.500.000 6.750.000 14.333.333
post money 1.250.000 4.500.000 10.750.000 18.333.333 20.370.370
total 10.350.000 5.092.593
All rights reserved
A simple cap table example - exit
13
price per share investment shares series C + SOP exit multiple
€ € # €
founders 100.000 1.000.000 20% 15.709.091 157
seed investor 1 250.000 250.000 5% 3.927.273 15,7
Series A investors 2 2.000.000 1.000.000 20% 15.709.091 7,9
Series B investors 3 4.000.000 1.333.333 26% 20.945.455 5,2
Series C investors 4 4.000.000 1.000.000 20% 15.709.091 3,9
stock option plan 509.259 10% 8.000.000
pre money
post money 20.370.370 80.000.000
total 10.350.000 5.092.593 7,7
exit value 80.000.000
stock-options 10%
All rights reserved
DEMONSTRATE NON-FINANCIAL VALUE
CREATION
Capricorn Venture Partners
14 All rights reserved
Measuring non-financial value
• Separate KPIs/VIPs for the current year and towards exit
• 2013 points should reflect management KPI’s and our priorities
• By preference “measurable” or “achieved yes/no” points
• Not every cell needs to be filled
• Colour coded
• Blue : status at start of year/neutral/work in progress
• Green : realised
• Orange : critical but solution identified
• Red : critical no solution identified
• Italic : changed versus previous quarter
15 All rights reserved
16 All rights reserved
THE PITFALLS FOR START-UPS
Capricorn Venture Partners
17 All rights reserved
5 reasons why you will fail
18
1. Don’t underestimate the time to market
4. It is not easy to convince a million consumers
5. In love and in business you have to let go sometimes
3. Big data is not a free for all
2. Beware of “It’s kind of a …”
All rights reserved
2 reasons why you will be succesful
19 All rights reserved
Team IP strategy
Team
• Get business & entrepreneurial experience in the team
• Do not force researchers in a CEO role
• Build multidisciplinary teams (not all engineers!)
• International exposure and language skills
• Humans are not scalable
• Hiring new key persons that you have to pay more as the founders?
• No function in a start-up company is forever
• Keep you friends as friends
• Foresee “good leaver – bad leaver” conditions in shareholders
agreement and stock option plans
20 All rights reserved
IP strategy
• Define and challenge your IP strategy!
• Protection or freedom to operate?
• Does a patent has value without the associated business?
• Is a licence model a valid business model?
• Are you prepared for a patent due diligence by a US law firm in view
of a $ xxx million acquisition?
• Any change of control clauses in your contracts with customers,
suppliers, license agreements
21 All rights reserved
IP strategy is more than patents
• Trademarks
• Website
• Trade Secrets
• Contractual IP
• Employment and assignment of invention agreements
• Consultancy contracts
• Contracts with suppliers and customers
• License agreements
• Your network
22 All rights reserved
Importance of patents
• Patents are important in any phase of a VC investment !
• As an information source for deal selection
• Before making an investment
o Strong and clean IP
o Full ownership of patent(s) by the company remains the preferred model!
o Exclusive license with transfer rights and right/obligation to defend source
IP?
o FTO - Freedom to operate is key
• During the investment period
• At exit (most likely via M&A transaction)
23 All rights reserved
THE PITCH
Capricorn Venture Partners
24 All rights reserved
Pitching is a lot like dating
25
1. Don’t order the most expensive thing on the menu
4. Have realistic expectations
5. Learn how to deal with disappointments
3. Be aware that you will be stuck with eachother for a while
2. Be yourself
All rights reserved
For further inquiries
Contact:
Tom Vanhoutte (tom@capricorn.be)
Capricorn Venture Partners
Lei 19/1, B-3000 Leuven, Belgium
Tel +32 16 284100 Fax +32 16 284108
http://www.capricorn.be
26 All rights reserved

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How to valuate your company, with Capricorn Venture Partners (Finance for Startups- part 2)

  • 1. CapricornVenturePartners How to value your company? Finance for Start-Ups May 28, 2013
  • 2. CAPRICORN VENTURE PARTNERS In short 2 All rights reserved
  • 3. Partners-owned 20 people organisation, 20 years existence Licensed asset manager – AIFMD compliant Over € 250 million under management Capricorn Venture Partners 3 All rights reserved ICT € 15 million CLEANTECH € 112 million Quest for Growth € 106.8 million* * December 31, 2012 Quest Cleantech Fund € 11.0 million* * December 31 , 2012 HEALTHTECH € 42 million Head office, Leuven, Belgium
  • 4. DISCLAIMER The views expressed in this presentation do not necessarily reflect the views of the Capricorn Venture Partners or its investment managers. 4 All rights reserved
  • 5. HOW TO VALUE YOUR COMPANY? Capricorn Venture Partners 5 All rights reserved
  • 6. Venture capital reality 6 Most capital get raised to address specific operational needs before significant value has been created. In those instances the strategic interest of new and existing investors to obtain or maintain a certain percentage interest in the company prevails over the valuation models. In most cases traditional valuation models become only relevant at exit. All rights reserved
  • 7. Conventional Valuation Techniques 7 • Discounted cash flow • Price / earnings ratio • Price / EBITDA ratio • Price / sales ratio All rights reserved
  • 8. Issue 8 Cash flow, earnings, EBITDA, sales, … ????? All rights reserved
  • 9. Alternative Valuation Techniques 9 • Peer comparison • Technology value • Pre-money versus post-money • 1/3 sweat - 1/3 IP – 1/3 €’s • Your value is 1 to 2 times the money you can raise • The price a fool is prepared to pay All rights reserved
  • 10. Who is afraid of dilution? 10 All rights reserved What do you prefer?
  • 11. Pre-money versus post-money • Always differentiate between pre-money and post-money • pre-money = value of the company before the transaction • post-money = value of the company after the transaction • post-money = pre-money + capital increase • post-money = invested amount / percentage in the company • post-money = total number of shares after the transaction x price per share • Always differentiate between actual and fully diluted shareholding • fully diluted = including all shares resulting from conversion, stock options, warrants, or any other rights related to securities of the company • Use price per share and total number of shares fully diluted as the legally binding values • Keep it simple 11 All rights reserved
  • 12. A simple cap table example 12 price per share investment shares seed series A series B series C series C + SOP € € # founders 100.000 1.000.000 80% 44% 28% 22% 20% seed investor 1 250.000 250.000 20% 11% 7% 5% 5% Series A investors 2 2.000.000 1.000.000 44% 28% 22% 20% Series B investors 3 4.000.000 1.333.333 37% 29% 26% Series C investors 4 4.000.000 1.000.000 22% 20% stock option plan 509.259 10% pre money 1.000.000 2.500.000 6.750.000 14.333.333 post money 1.250.000 4.500.000 10.750.000 18.333.333 20.370.370 total 10.350.000 5.092.593 All rights reserved
  • 13. A simple cap table example - exit 13 price per share investment shares series C + SOP exit multiple € € # € founders 100.000 1.000.000 20% 15.709.091 157 seed investor 1 250.000 250.000 5% 3.927.273 15,7 Series A investors 2 2.000.000 1.000.000 20% 15.709.091 7,9 Series B investors 3 4.000.000 1.333.333 26% 20.945.455 5,2 Series C investors 4 4.000.000 1.000.000 20% 15.709.091 3,9 stock option plan 509.259 10% 8.000.000 pre money post money 20.370.370 80.000.000 total 10.350.000 5.092.593 7,7 exit value 80.000.000 stock-options 10% All rights reserved
  • 14. DEMONSTRATE NON-FINANCIAL VALUE CREATION Capricorn Venture Partners 14 All rights reserved
  • 15. Measuring non-financial value • Separate KPIs/VIPs for the current year and towards exit • 2013 points should reflect management KPI’s and our priorities • By preference “measurable” or “achieved yes/no” points • Not every cell needs to be filled • Colour coded • Blue : status at start of year/neutral/work in progress • Green : realised • Orange : critical but solution identified • Red : critical no solution identified • Italic : changed versus previous quarter 15 All rights reserved
  • 16. 16 All rights reserved
  • 17. THE PITFALLS FOR START-UPS Capricorn Venture Partners 17 All rights reserved
  • 18. 5 reasons why you will fail 18 1. Don’t underestimate the time to market 4. It is not easy to convince a million consumers 5. In love and in business you have to let go sometimes 3. Big data is not a free for all 2. Beware of “It’s kind of a …” All rights reserved
  • 19. 2 reasons why you will be succesful 19 All rights reserved Team IP strategy
  • 20. Team • Get business & entrepreneurial experience in the team • Do not force researchers in a CEO role • Build multidisciplinary teams (not all engineers!) • International exposure and language skills • Humans are not scalable • Hiring new key persons that you have to pay more as the founders? • No function in a start-up company is forever • Keep you friends as friends • Foresee “good leaver – bad leaver” conditions in shareholders agreement and stock option plans 20 All rights reserved
  • 21. IP strategy • Define and challenge your IP strategy! • Protection or freedom to operate? • Does a patent has value without the associated business? • Is a licence model a valid business model? • Are you prepared for a patent due diligence by a US law firm in view of a $ xxx million acquisition? • Any change of control clauses in your contracts with customers, suppliers, license agreements 21 All rights reserved
  • 22. IP strategy is more than patents • Trademarks • Website • Trade Secrets • Contractual IP • Employment and assignment of invention agreements • Consultancy contracts • Contracts with suppliers and customers • License agreements • Your network 22 All rights reserved
  • 23. Importance of patents • Patents are important in any phase of a VC investment ! • As an information source for deal selection • Before making an investment o Strong and clean IP o Full ownership of patent(s) by the company remains the preferred model! o Exclusive license with transfer rights and right/obligation to defend source IP? o FTO - Freedom to operate is key • During the investment period • At exit (most likely via M&A transaction) 23 All rights reserved
  • 24. THE PITCH Capricorn Venture Partners 24 All rights reserved
  • 25. Pitching is a lot like dating 25 1. Don’t order the most expensive thing on the menu 4. Have realistic expectations 5. Learn how to deal with disappointments 3. Be aware that you will be stuck with eachother for a while 2. Be yourself All rights reserved
  • 26. For further inquiries Contact: Tom Vanhoutte (tom@capricorn.be) Capricorn Venture Partners Lei 19/1, B-3000 Leuven, Belgium Tel +32 16 284100 Fax +32 16 284108 http://www.capricorn.be 26 All rights reserved