Slides of Martin & Xavier before the presentation of Tom Vanhoutte

1. Xavier Corman | Martin van Wunnik 128/05/2013 Xavier Corman | Martin van Wunnik 128/05/2013
Finance for Startups
How to valuate your
company, with Capricorn Venture
Partners
Martin van Wunnik
Xavier Corman

2. Xavier Corman | Martin van Wunnik 228/05/2013 Xavier Corman | Martin van Wunnik 228/05/2013
Sponsors

3. Xavier Corman | Martin van Wunnik 328/05/2013 Xavier Corman | Martin van Wunnik 328/05/2013
Finance for Startups
Introduction
• Financial Valuation Basics
• Non Financials Aspects
• Capricorn Venture Partners
• Q&A

4. Xavier Corman | Martin van Wunnik 428/05/2013 Xavier Corman | Martin van Wunnik 428/05/2013
This presentation is available for free:
http://www.slideshare.net/XavierCorman
http://www.slideshare.net/FinanceCoach24

5. Xavier Corman | Martin van Wunnik 528/05/2013 Xavier Corman | Martin van Wunnik 528/05/2013
Who we are
Martin van Wunnik
Xavier Corman

6. Xavier Corman | Martin van Wunnik 628/05/2013 Xavier Corman | Martin van Wunnik 628/05/2013
Financial Valuation Basics
Based on Balance Sheet
Based on Profit & Loss Statement
DCF – Discounted Cash Flows
with WACC – Weighted Average Cost of Capital
& IRR – Internal Rate of Return

7. Xavier Corman | Martin van Wunnik 728/05/2013 Xavier Corman | Martin van Wunnik 728/05/2013
Based on Balance Sheet
Net Assets = Total Assets – Total long term debts
Adjusted Net Assets = : +/- adjustments
Provisions, historical values (land, buildings),
‘normalized salaries’, …
Liquidation value :
Not going-concern (social liabilities, C4, …)
Goodwill, Customers, Patent, etc…

8. Xavier Corman | Martin van Wunnik 828/05/2013 Xavier Corman | Martin van Wunnik 828/05/2013
Based on Profit & Loss Statement
Multiples based on:
Sales
EBITDA
EBIT
Taxable Profit
Net Profit
www.impulse.de
•

9. Xavier Corman | Martin van Wunnik 928/05/2013 Xavier Corman | Martin van Wunnik 928/05/2013
DCF – Discounted Cash Flows

10. Xavier Corman | Martin van Wunnik 1028/05/2013 Xavier Corman | Martin van Wunnik 1028/05/2013
WACC
Weighted Average Cost of Capital
Time & Risk
The WACC is the cost of each capital component,
multiplied by its proportional weight,
and then summing them up.

11. Xavier Corman | Martin van Wunnik 1128/05/2013 Xavier Corman | Martin van Wunnik 1128/05/2013
Cost of Equity:
Which elements ?
re = rf + β × (rm − rf)
Capital Asset Pricing Model (CAPM)
rf = risk-free rate
β = equity beta (volatile)
(rm − rf) = market risk premium

12. Xavier Corman | Martin van Wunnik 1228/05/2013 Xavier Corman | Martin van Wunnik 1228/05/2013
IRR – Internal Rate of Return
IRR makes DCF = 0
 Present value of all future cash flow
= initial investment (i.e. break even)
The higher IRR, the better
(when all other factors are equal)

13. Xavier Corman | Martin van Wunnik 1328/05/2013 Xavier Corman | Martin van Wunnik 1328/05/2013
IRR (Internal Rate Return)
2
3
8
32
0
5
10
15
20
25
30
35
IRR 10 % IRR 25 % IRR 50 % IRR 100 %
Comparison of IRR
Year 1 Year 2 Year 3 Year 4 Year 5

14. Xavier Corman | Martin van Wunnik 1428/05/2013 Xavier Corman | Martin van Wunnik 1428/05/2013
Evolution IRR/maturity
0%
20%
40%
60%
80%
100%
120%
Idea MVP 1st Clients Break-even Profit Sustainable growth
IRR

15. Xavier Corman | Martin van Wunnik 1528/05/2013 Xavier Corman | Martin van Wunnik 1528/05/2013
0
50000
100000
150000
200000
250000
300000
350000
400000
0%
20%
40%
60%
80%
100%
120%
Idea MVP 1st Clients Break-even Profit Sustainable
growth
Idea MVP 1st clients Break-even TOTAL
Scenario 1 Capital increase 1.000.000 1.000.000
Shares investor 40%
Type of investor BA+VC
Cost of capital 100% 50% 35% 100%
Scenario 2 Capital increase 50.000 200.000 750.000 1.000.000
Shares investor 5% 15% + 4% = 23% 15%+13%+4%=31%
Type of investor FFF BA VC
Cost of capital 100% 50% 35% 41%
Cash need
IRR

16. Xavier Corman | Martin van Wunnik 1628/05/2013 Xavier Corman | Martin van Wunnik 1628/05/2013
Investor’s motivation
Return on investment
Social aspect
Influence on the management of the company

17. Xavier Corman | Martin van Wunnik 1728/05/2013 Xavier Corman | Martin van Wunnik 1728/05/2013
Pré-money & Post-money
2,000,000
500,000
VALUE
Pre-money Investment

18. Xavier Corman | Martin van Wunnik 1928/05/2013 Xavier Corman | Martin van Wunnik 1928/05/2013
Valuation - What is dilution ?
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Start 1st Round 2nd Round
95%
81%
69%
5%
4%
4%
15%
13%
15%
VC
BA
FFF
Founder(s)

19. Xavier Corman | Martin van Wunnik 2028/05/2013 Xavier Corman | Martin van Wunnik 2028/05/2013
Relution / Dilution
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Start 1st Round 2nd Round Exit
95%
81%
69% 75%
5%
4%
4%
3%
15%
13%
10%
15% 12%
VC
BA
FFF
Founder(s)

20. Xavier Corman | Martin van Wunnik 2128/05/2013 Xavier Corman | Martin van Wunnik 2128/05/2013
Tools for relution
Options (call/put)
Warrants

21. CapricornVenturePartners
How to value your company?
Finance for Start-Ups May
28, 2013

22. CAPRICORN VENTURE PARTNERS
In short
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23. Partners-owned
20 people organisation, 20 years existence
Licensed asset manager – AIFMD compliant
Over € 250 million under management
Capricorn Venture Partners
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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

24. DISCLAIMER
The views expressed in this presentation do not necessarily reflect
the views of the Capricorn Venture Partners or its investment
managers.
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25. HOW TO VALUE YOUR COMPANY?
Capricorn Venture Partners
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26. Venture capital reality
27
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.
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27. Conventional Valuation Techniques
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• Discounted cash flow
• Price / earnings ratio
• Price / EBITDA ratio
• Price / sales ratio
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28. Issue
29
Cash flow, earnings, EBITDA, sales, … ?????
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29. Alternative Valuation Techniques
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• 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
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30. Who is afraid of dilution?
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What do you prefer?

31. 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
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32. A simple cap table example
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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
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33. A simple cap table example - exit
34
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%
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34. DEMONSTRATE NON-FINANCIAL VALUE
CREATION
Capricorn Venture Partners
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35. 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
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36. Key Performance Indicators
& Value Inflection Points
2013 towards exit
Commercial Traction
• Conclude multi year supply contract with key
player
• Continue supply of product to + 5 clients
• Multiple supply contracts with yearly value
above € 500k
• Diversified customer portfolio with standard
products
Operations
• + 80% production yield
• Ready to order additional capacity
• ISO qualification
• Demonstrated high yield and fast ramp-up
• Second sourcing or dual location strategy in
place to reduce supply risk
Technology and IP
• 600 V grounded substrate demonstrated
• Solution identified and demonstrated at
product level for current issue
• Demonstrated capabilities on smaller scale
• Strong and broad IP portfolio, several patents
granted, strong patent application pipeline
Team
• VP Sales on board
• Strengthen team via active chairman,
executive chairman or alternative solution
• Conversion from a research driven team to a
commercial team with demonstrated industrial
experience
Finance
• Close bridge round
• Close series B financing to allow
• + € 5M sales
• Cost leadership allowing high margin business
Other • Operations in Asia or clear plan towards Asia
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37. THE PITFALLS FOR START-UPS
Capricorn Venture Partners
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38. 5 reasons why you will fail
39
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 …”
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39. 2 reasons why you will be succesful
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Team IP strategy

40. 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
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41. 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
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42. 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
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43. 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)
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44. THE PITCH
Capricorn Venture Partners
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45. Pitching is a lot like dating
46
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
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46. 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
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