Material used in the Entrepreneurship course (Bachelor in Management) at the Toulouse Business School (Barcelona Campus)
November 2017
Brief review of the different stages in the life of a Start Up company, type of investors, valuation methods, the importance of growth management
Everything you need to know about an investment and fundraising for start-ups. The presentation covers all different sources of financing for high growth companies:
- Bootstrapping and the four Fs
- Angel investors
- Startup accelerators
- Venture capital funds
- Investment documentation
- Alternative funding sources (crowdfunding, etc.)
- Grants and incentives
In the presentation you will also find some basics how to prepare your investment documentation and how to pitch to venture capital investors.
This document provides rules and guidance for entrepreneurial accounting and finance. It discusses several key points:
1) Everyone should understand finance, but accounting tasks can be delegated. Finance is integral to daily decisions.
2) Entrepreneurs must have a financing strategy that considers the pros and cons of different sources of funding like equity, loans, income reinvestment, and other options.
3) A thoughtful investment strategy is needed that balances long and short-term investments based on the business model and compares financial ratios to industry benchmarks.
4) Clean, accurate accounts are essential for planning, management, and performance evaluation. Managers need both financial and managerial accounting reports to make strategic decisions.
The document provides information for startups on fundraising from venture capital investors in Poland. It discusses the stages of startup development and when it is best to seek investment. Sources of capital at different stages are outlined, including typical investment amounts and share percentages. An overview is given of how venture capital funds operate, how they evaluate projects, and the investment process. Advice is provided on preparing investment materials like a teaser, presentation, and financial plan. Golden rules are outlined for finding investors and having successful investment meetings and negotiations.
How to define and position your VC brand to attract funding and dealflow.
* note: more recent updated version below:
https://www.slideshare.net/dmc500hats/branding-strategies-for-better-dealflow-and-fundraising-aka-the-helpful-vc
This document provides an overview of startup valuation and fundraising strategies. It discusses financial projections, exit strategies, and valuation methods. Key points include:
- Financial projections should include revenue models, customer projections, costs, and cash flow budgets to support fundraising goals.
- An exit strategy outlines potential acquisitions, IPOs, or remaining independent to help investors evaluate return on investment.
- Comparable company analyses use multiples like revenue or EBITDA to estimate startup valuation based on exited companies.
The document provides templates and considerations for building financial models, researching comparable acquisitions, and determining valuation to support fundraising efforts.
VC Fundraising Deck Template: Carta x Kauffman FellowsNihar Neelakanti
Carta and Kauffman Fellows present a venture capital fundraising deck template highlighting the various components a GP should include as part of their fundraising story to attract limited partners.
The document provides an overview of startup financing options and the investment process. It discusses self-financing, debt financing, equity financing sources like angels and venture capital. It covers how VCs and angels make money, what investors look for, engaging with investors through the deal process, typical deal terms, and important factors to consider when choosing investors beyond just valuation.
Venture Capital Unlocked (Stanford) / Venture Capital 2.0Dave McClure
slides for my "Venture Capital 2.0" opening talk at Stanford School Continuing Studies, VC101 class "Venture Capital Unlocked" #VCunlocked #500startups
Introduction to Business Angel Investing'Tomi Davies
This presentation is Based on the book “Angel Investing - The Gust Guide to Making Money & Having Fun Investing In Startups” by David S. Rose @davidsrose CEO of Gust and Founder of New York Angels angelinvesting.com
It is for a Masterclass designed for practising and potential business angels who want to understand the basics of angel investing. It is a comprehensive guide that walks students through every step of the way to becoming a successful angel investor.
The class exposes students to fundamental strategies and specific tools required to take full advantage of this rapidly growing asset class, from building your reputation as a smart investor, to negotiating fair deals and adding value to your portfolio of companies through to helping them implement smart exit strategies.
The document outlines an agenda for a training on startup funding and valuation. The training will cover various topics across four sessions, including funding stages, equity and convertible debt valuation models, and building financial projections. It also provides biographical details about the trainer, Joris Kersten, including his background, work experience, education, areas of teaching, and contact information.
This document discusses 5 methods for valuing a startup company:
1. The Scorecard method compares a startup to already funded companies based on factors like management team and market opportunity.
2. The Checklist method assigns fixed dollar values to elements like management team and product based on an investor's assessment.
3. The Discounted Cash Flow method with Multiples values a company based on projected cash flows discounted to the present using a discount rate and a terminal value based on EBITDA multiples of comparable companies.
4. The Discounted Cash Flow method with Long-Term Growth values a company similarly but assumes cash flows will grow at a consistent long-term rate instead of using a terminal value.
The Startup Studio Playbook is the World's first professional book dedicated to startup studios, a.k.a. venture builders, startup factories. It is a book for entrepreneurs and innovators. Read about exciting case studies and best practices, discover how the startup studio model enables you to build startups easier
You will benefit from this book if you are interested in entrepreneurship or innovation. Startup studios are on the rise, quickly becoming the new trend in building startups. If done right, model enables you to build startups in a less risky and more cost-efficient way. Discover how this model can benefit you.
The main goal of the Startup Studio Playbook is to make startup studios more transparent, and make it easier to create and grow new studios. In this book you will learn about:
- Who are the founders behind the most exciting studios;
- How are are these organizations funded;
- Where do studios take the idea for their startups;
- How startup studio organize their team and operations;
- What are the spin-off and exit strategies;
- What are the pros and cons of the model;
- How different startup studios operate across the Globe;
- How corporations can leverage the benefits of the model;
- How you can build your own startup studio?
Find out more:
http://www.startupstudioplaybook.com/
Get the book. Use the offer code 'earlybird' to get a discount.
https://gumroad.com/l/startupstudioplaybook
Founders Factory is an accelerator and incubator based in London that was founded in 2015. It aims to build technology companies through two main programs - an accelerator that supports existing startups, and an incubator that develops new companies from scratch with Founders Factory and its corporate investors. It has a team of over 60 specialists and has worked with over 60 startups and created 12 startups through its incubator program. It is backed by six major corporate investors in sectors like media, travel, fintech, beauty, education technology and AI. The organization provides funding, services, expertise and access to corporate partnerships to help technology companies scale rapidly.
DocSend studied over 200 pitch decks from startups that raised $360 million total to identify best practices for graduating from bootstrapped to seed funding or angels to a Series A. They found that decks should tell a clear story, be visual, and have 10-13 concise slides covering the company introduction, problem, solution, market opportunity, product, business model, marketing strategy, team, traction, financials, and investment ask. Startup Studio Monterrey is an innovation studio that supports Mexican entrepreneurs through an accelerator program, mentorship, and connections to transform ideas into market-ready products and services.
Slash | The Venture Builder Playbook (5 may2021)Slash
Talk delivered to tech and corporate community on the Venture Builder Playbook.
We covered:
1) Why Venture Building is the new "growth" strategy for corporates worldwide
2) Flavors of Venture Building
3) The Venture Builder Playbook (at a high level)
Corporate Venture Capital best practices from interviews and researchMark S. Brooks
Summary research from interviews with 13 CVCs to identify best practices in creating a corporate venture capital (CVC) unit or a corporate accelerator.
Key takeaways include having clear objectives, clear processes and structure, easy to measure metrics, having patience and board or executive support, and making contributions to select startups that go well beyond capital.
I hope you find it useful. Feel free to distribute further to others who might find value in it.
You can reach me at https://www.linkedin.com/in/markbrooks
1. Venture capital firms raise capital to finance new companies, take equity stakes and board positions, add value through participation, and seek higher returns through liquidity events like IPOs or acquisitions.
2. In 2006, $25.8 billion was invested in the US through 2,454 deals, averaging $10.5 million per deal. Information technology received the majority of investments.
3. Venture capital has significantly grown as an asset class since 1980 and has expanded internationally to places like India and China.
Private equity funds are investment vehicles comprised of limited partners who invest capital and general partners who manage the funds. They have a limited lifetime of typically 10 years to make investments and then another 2 years to sell investments and return profits to investors. General partners receive management fees of around 1-2% of assets under management as well as carried interest, usually 20% of profits above an 8% hurdle rate. This structure allows for investors and managers to benefit from private equity returns without incurring multiple layers of taxation.
The document provides an overview of what constitutes a startup business versus a small business. It explains that startups require significant funding to achieve high growth rates and add value through generating jobs and wealth. The key aspects of a startup that it outlines are the need for a team-driven approach, appetite for risk-taking, and focusing business plans for investors on the team and market opportunity rather than extensive details. It also summarizes how venture capital firms operate by collecting funds from investors to invest in startups.
Start ups challenges for funding optionsAnjana Vivek
How do you choose from this range of investors and more: HNIs, informal and formal Angel groups,Seed Funds,Venture Capital, Private Equity, Banks, Strategic Investors, Corporate Funds; (Family) Business Groups, Indian & Global, Government supported funds, Impact Investors, Incubators, Accelerators, Crowd funding, Online funding platforms
The document discusses the business life cycle and the four stages businesses typically go through: startup, growth, maturity, and decline. It explains that each stage presents unique challenges and businesses must adapt their strategies. It also provides details on what occurs during each phase of the business cycle, including how factors like wages, unemployment, borrowing, and business profits fluctuate during expansion, peak, contraction, and trough periods.
Are you thinking about what you need to fund your company? Where do you start? Funding is not “one size fits all”. Every company has to approach their pathway to funding with a unique approach. Join our fundraising experts for an in-depth discussion of what options you have for funding and how to decide which paths are right for you and your company. Topics covered will include investment criteria, time to closing, investment range, success rates, control features, compliance requirements and the overall costs of capital from each such source.
Jean Hammond – LearnLaunchX, LearnLaunch.org, Hub Angels, Launchpad Venture Group, Golden Seeds
Robert Bishop - Goodwin Procter
In partnership with:
Founders Workbench
From Bootstrapping to Venture Rounds: A Startup Case StudyRoger Ehrenberg
The document provides an overview of the different stages of startup funding: bootstrapping, angel rounds, seed rounds, and venture rounds. It discusses the characteristics of each stage, when they typically occur, the typical amount of funding, and the tradeoffs involved. It emphasizes the importance of understanding the company's goals before taking external capital and performing diligence on potential investors. The case study describes funding the ad tech company The Trade Desk in 2009 when the industry was considered crowded and venture appetite was low. It prompts evaluating whether one would invest in the company based on the presented information and environment.
How to sell your business idea to your customers & investorsEspeo Software
Presentation for the School of Startups in Helsinki - and a very good resource for any new business! We tackle issues from funding through valuation to scaling.
The document discusses the typical stages of growth for startup companies over their first 3-5 years: proof of concept, seed, startup, early, growth, and later stage to maturity. It notes that many startups fail to make it through the "Valley of Death" period when spending exceeds revenue. The document advises entrepreneurs to match their capital needs at each stage to the appropriate sources, such as founders, friends and family initially, then potentially banks, grants, bootstrapping, angels, and venture capital later on. It stresses developing a capital plan to only raise what is needed to hit business plan milestones.
Prajakt Raut has extensive experience helping startups obtain angel/VC funding. He discusses multiple funding options and that different investors invest at different venture stages due to varying risk levels. He emphasizes that investors look for large market opportunities, strong teams with clear implementation plans and milestones, and evidence that concepts can scale successfully. The key is convincing investors that your startup represents a good investment through your business plan and team.
Getting angel or VC funding for your venturePrajakt Raut
Prajakt Raut has extensive experience helping startups obtain angel/VC funding. He discusses multiple funding options and that different investors invest at different venture stages due to varying risk levels. He emphasizes that investors look for large market opportunities, strong teams with clear implementation plans and milestones, and evidence that concepts can scale successfully. The key is convincing investors that your startup represents a good investment through your business model, team, and practical plans to reach milestones while requiring only the funding needed for the next stage.
Beginner's Guide: How to raise Seed and Series A Funding for Your Tech StartupsRakesh Soni
This is a short beginners' guide to learn about startup fundraising particularly Seed and Series A round.
CONTENT:
Introduction
Startup Funding 101:
What is funding and why do you need it?
Types of funding
When to raise and how much to raise
Understanding exit
Key players in fundraising
What matters to founders?
Understanding dilution
How to determine the valuation
Understanding controlling terms
How do VCs work?
Seed and Series A Funding:
Are you ready for funding?
Preparation
How to raise: processes, tips & tricks
Recommended Reading
Q&A
The document provides an overview of different funding options for early stage companies, including the types of investors that provide funding at different stages of growth. It discusses the importance of having the right materials prepared, such as a business summary, pitch deck, and financial model, in order to effectively pitch to potential investors. The document also outlines factors that investors consider regarding a company's risk level and the characteristics of companies that typically do and do not receive angel investment.
Tomas Martunas discusses key elements for developing an idea into a sustainable business. He outlines the typical business development cycle from pre-seed to later stage funding. Martunas also discusses factors that show the attractiveness of an idea such as addressing large markets, focusing on rich customers, and solving important problems for customers. Additionally, he notes important elements of sustainable startups include having a clear purpose, focus, thinking differently than competitors, and building an agile team. Martunas advises founders on presenting ideas to investors by discussing traction, revenues, costs, valuation, and plans for investment.
Craig Blair is a co-founder and partner at AirTree Ventures which invests in world-class Australian entrepreneurs building the iconic companies of tomorrow. With over 15 years experience running 2 of Australia’s most successful tech investment funds with partner Daniel Petre and backing businesses such as eBay, Beamly and Ninemsn, Craig is keen to share his insights on how to get a VC's attention. This presentation includes:
- The Start Up journey - what you can expect
- The key steps to approaching a VC
- What to do (and what not to do) when pitching to your business
- How to avoid the pre/post money traps
- How to choose your funding partner (remember VCs and investors are an employee you can't fire!)
The document discusses various options for funding a startup:
Bootstrap funding involves using personal savings which allows autonomy but limits growth. Crowdfunding builds early users but requires extensive marketing. Accelerators provide funding and expertise over 2-4 months in exchange for equity but founders lose some control. Venture capitalists and angel investors provide substantial funding in exchange for equity and guidance, but want a return and have influence over decisions. The best approach depends on the startup's needs and stage.
This document provides an overview of the opportunities and benefits of becoming an Investors Group consultant. It highlights the entrepreneurial environment, industry-leading training, flexibility and independence, mentorship and support, exceptional income potential, and brand strength that Investors Group offers. The summary also notes Investors Group's top rankings in the financial planning industry and award-winning corporate citizenship. It promotes the two career paths available and profiles of successful consultants who have built their practices at Investors Group.
The document provides an overview of pitching for startup investment, including common reasons entrepreneurs seek funding, typical sources of funding at different stages, and key expectations of angel investors. It also cautions that most startups fail and the most common exit is through acquisition rather than IPO. The workshop will focus on helping aspiring founders create effective investor pitch presentations to fuel their business ideas.
HOW TO START UP A COMPANY A STEP-BY-STEP GUIDE.pdf46adnanshahzad
How to Start Up a Company: A Step-by-Step Guide Starting a company is an exciting adventure that combines creativity, strategy, and hard work. It can seem overwhelming at first, but with the right guidance, anyone can transform a great idea into a successful business. Let's dive into how to start up a company, from the initial spark of an idea to securing funding and launching your startup.
Introduction
Have you ever dreamed of turning your innovative idea into a thriving business? Starting a company involves numerous steps and decisions, but don't worry—we're here to help. Whether you're exploring how to start a startup company or wondering how to start up a small business, this guide will walk you through the process, step by step.
Frank Maene: pitching a business to private investorsIAMCP MENTORING
Mr. Maene presents his great experience on how to pitch a start-up to a potential investor. Ye talks about right things and wrong things.
Use his shared knowledge to attract investors and let your start-up grow faster.
Join the IAMCP community (www.iamcp.org) to get access to an actual information, conferences and speakers.
Bussiness portfolio Assignment: A brief description to my business logo, des...Gurjant Singh
This Presentation discusses about my organic dietitian business that is represented by a vibrant green leaf logo, symbolizing health, growth, and sustainability, with a clean and modern design reflecting our commitment to eco-friendly practices. We offer flexible pricing options, including Basic, Standard, and Premium plans, to accommodate various needs and budgets. Our marketing strategies focus on a strong online presence, content marketing, and collaborations with local organic farmers and fitness centers. Our services include personalized diet plans, nutrition counseling, educational workshops, and fitness integration, all tailored to promote healthier lifestyles and sustainable practices, helping clients achieve their health goals while supporting the environment.
Smart Money Moves Trends in Fintech Investments in the Indian Market.pdfFoxnangel
The importance of fintech is multifaceted and extends across various sectors. One key aspect is financial inclusion. Fintech has the potential to bring financial services
Ahmedabad @Call @Girls 0000000000 Rani Best High Class Ahmedabad Available
Valuation of start up companies
1. Valuation of Start-Up Companies
November 2nd 2017
César García de Roda
Director of Valuation Services
MAZARS Financial Advisory
cesar.garcia@mazars.es
2. 2
Introduction
• Topics:
• Valuation of Start-Up Companies
• Contents:
1. How we define a Start-up?
2. The different stages of a Start-up
3. Why is valuation important?
4. Due Diligence of Start-Ups. Which is the focus?
5. Financing rounds and investor types
6. Valuation Methods
7. Recap
Time permitting:
“Investment in Start-Ups in Spain 2016”
4. 4
How we define a Start-up?
A Start-up is ……….
…….a NEW company / NEW business
That offers ……….
…….INNOVATIVE products and/or services
With ………….
…….high GROWTH potential
Start-ups generally refer to “technology driven” companies although we can find start-
ups in other fields where technology is not the key driver.
5. 5
The management of Growth
• Growth potential is the main characteristic of a Start-up, so a new
local shop or a new restaurant that offers new products can not be
considered as a Start-up. It has to be a Scalable Business
• Growth is linked to investment, and investments are linked to
financing needs
• However, in their first phase of development, start-ups are not able
to finance their growth as they do not generate cash, instead they
burn it at a very fast speed
• There are different development phases in the life of a Start-up,
each of them with different financing needs
• One of the first challenge of the entrepreneur is to correctly
identify the financing needs and to find the right source of
financing for that stage
7. 7
The different stages of a Start-up
time
$
€
0
SEED
STAGE
EARLY
STAGE
GROWTH
STAGE
EXPANSION
STAGE
EXIT
Valley of
Death
8. 8
Each stage is different and needs different financing solutions
time
$
€
0
SEED
STAGE
Characteristics
• Development of the idea by the entrepreneur
• Analysis & studies (market, client, product…)
• Challenge: Business Plan Beta
• Seek for third party advice: parents, friends, work mates, industry experts
• Small team: sometimes only entrepreneur + tech guy
Financing needs and solutions
• No revenue but high initial costs (first prototypes, studies, travel, etc.)
• Team has no salary
• Financing by entrepreneur (savings), friends and family
• Some Business Angels (BA) also invest in Seed stages
9. 9
Each stage is different and needs different financing solutions
time
$
€
0
SEED
STAGE
Characteristics
• Product/Service has been developed
• Challenge: develop business and enter the market
• New tasks: marketing & sales
• New team is needed: fixed salary vs % equity
Financing needs and solutions
• First revenue (still low) but high costs (team, marketing,
offices, production, development, etc.)
• Financing needs increase substantially
• Business Angels (BA), incubators, accelerators,
crowdfunding, crowdlending and public agencies are
present in early stage investments
EARLY
STAGE
10. 10
Each stage is different and needs different financing solutions
time
$
€
0
SEED
STAGE
Characteristics
• Product is demanded by the market so is
time for growth and increase market share
• Main challenge for the entrepreneur is time
management: team, competitors, product,
finance, innovation, clients, legal, suppliers..
Financing needs and solutions
• Recurrent revenue but cash flow not
enough to finance all the growth
• Visibility on business model and cash flows
is higher so its time for Venture Capital (VC)
EARLY
STAGE
GROWTH
STAGE
11. 11
Each stage is different and needs different financing solutions
$
€
0
EXPANSION
STAGE
EXITSEED
STAGE
EARLY
STAGE
GROWTH
STAGE
Characteristics
• Growing flow of revenue, solid client
base and stable workforce
• Main challenge: expand to new
markets and new segments
• Risks: Is the organization prepared?
Financing needs and solutions
• Growing revenue and generation of
cash flows is key to give confidence and
attract new investors
• Expansion is very cash demanding
• New VC and specialized Private Equity
(PE) are called to be the right investors
time
12. 12
Each stage is different and needs different financing solutions
$
€
0
Characteristics
• If the company is in the EXIT stage we are
talking about a SUCCESS STORY!
• The company is generating important cash
flows and might be of interest to other
companies or investors. It’s time to make a
decision:
• Do we keep growing? Do we look for new
opportunities (new products, new
markets, new segments)? Same team?
• Do we cash out? IPO, Corporate,
Secondary market (PE)
EXPANSION
STAGE
EXITSEED
STAGE
EARLY
STAGE
GROWTH
STAGE
time
14. 14
Why is valuation important?
SEED
STAGE
EARLY
STAGE
GROWTH
STAGE
EXPANSION
STAGE
EXIT
• The valuation of the company and the amount to invest determine the % of the share
capital that an investor will obtain when investing in the company, but also the new %
of ownership of the entrepreneur and the existing shareholders at that time
• At least one valuation of the company per stage will be needed
• Sometimes there are more than one financing rounds per stage, so easily a Start-up is
subject to external valuations more than 10-20 times in its life!
time
100%
~0 €
€ millions
Small %
15. 15
Valuation issues in Start-ups
• No history
• Small or no revenue and operating losses
• High risk do to the uncertainty of the future development
• Depending on private investors and many financing rounds
• Illiquidity of the investment
• Many of the Start-ups don’t survive: between 75%-80% of them
fail before year 5,and 90% before year 10
• So… Why investing in Start-Up companies?
• Those companies that complete all stages show exceptional
returns and clearly compensate the risks taken by the investors
and the losses from other failed investments
• Diversification of investments is very important for investors
16. 16
Two Success Stories: Spotify & UBER
• October 2008
• Valuation $100m - > Series A financing raises $22m
• In the following 7 years there where 7 investment rounds
• Last of the 7 investment rounds:
• Valuation $8bn -> Series G financing raises $526m
• 80 times the valuation obtained in 2008
• February 2011
• Valuation $160m - > Series A financing raises $11m
• July 2015
• Valuation $50bn -> Series F financing raises $1bn
• +800 times the valuation in 4 years
18. 18
Due Diligence of Start-Ups
Which is the focus?
When acquiring a mature company the investor focuses in the classical Due
Diligence ….
• Financial & Tax
• Legal & Labour
• Other (environmental, commercial, operating…)
When we are talking about Start-ups, specially in seed and early stages, the focus
is completely different, and there are 3 aspects that are key for the investor to
secure the value of the company:
1. Founding partners (entrepreneurs)
2. Product and business model
3. Market
19. 19
Due Diligence of Start-Ups
1. Founding partners (entrepreneurs)
• In Pre-Sales stage companies, investor’s bet is on the founder and his/her idea
• So, it is of maximum importance to get to know the founder:
• Is he/she committed with the project? How?
o Did he/she left his/her previous job to work exclusively in the project? Or just in the weekends?
o Has he/she or his/her family invested in the project? If yes, how much?
• Is this his/her first project?
o If no, were the other projects successful? Why or why not?
2. Product and business model
• Full understanding of the product
• Prices, target users..
• Business model
• Is a capital intensive business?
• Which is the cost structure of the industry? Are there economies of scale?
3. Market
• Size of the market: current size and growth opportunities
• Competitors and entry barriers
23. 23
Financing Rounds and Investor Types
• Start-Ups financing is far more developed in countries like US &UK
• In Spain and other EU countries, the number and variety of financial
investors and instruments available for the first stages of
development of the Start-Ups has increased a lot in the last 10 years:
SEED
STAGE
EARLY
STAGE
GROWTH
STAGE
EXPANSION
STAGE
• FFF (Friend, Family & Fools)
• Accelerators / Incubators
• Crowdfunding & Crowdlending
• Business Angels (BA)
• Public Agencies: ENISA, CDTI
• Venture Capital (VC)
• Series A, B, C …
• Private Equity (PE)
• Investment banks (IB)
24. 24
Financing Rounds and Investor Types
FRIENDS, FAMILY & FOOLS …..
• Individuals that are close to the founder/entrepreneur
• They are the first ones to invest and their motivation is more
confidence and friendship than a financial return
• Friends and Family are always the first source of financing as they
are unconditional investors and proud to participate in the project
• The third “F” (Fools ) includes work colleagues, ex-bosses, old
teachers or any one close to the founder
• Each investment is not very big, but enough for the first steps of the
project
• A good number of FFF is also a very positive signal to other
investors to come as the founder is showing that people trust him
25. 25
Financing Rounds and Investor Types
ACCELERATORS & INCUBATORS
• They can be of great help to the founder at the start of the project
• These platforms offer support to entrepreneurs in the form of workplaces,
project assessment (mentorship), elaboration of the business plan and legal &
financing assessment
• In exchange of 5-10% of capital
CROWDFUNDING
• Reward Based: the entrepreneur offers a reward in the form of product and/or
service according to the amount of the investment
• Equity Based: the investors get a participation in the equity of the Start-Up and
they become shareholders
CROWDLENDING
26. 26
Financing Rounds and Investor Types
BUSINESS ANGELS
• Individuals that take their own investment decisions and invest in
projects that are of interest according to their own judgement (e.g.
Canvas Model)
• BA normally support the company also with contacts, knowledge,
experience and time
• BA investment amounts vary, but typically move in the range of
75.000€ - 400.000€
• Sometimes a group of BA work and invest together (Angel
Syndicates)
27. 27
Financing Rounds and Investor Types
VENTURE CAPITAL (VC)
• VC are generally specialized investors by industry, investment size
and investment round (series)
• Series A
• Amount: between €2m and €5m (Europe)
• Goal: financing of the initial growth stage
• Characteristics: still high risk profile in product, team and organization
• Series B
• Amount: between €6m and €10m (Europe)
• Goal: financing of expansion and value creation
• Characteristics: need to grow and continuous product development
28. 28
Financing Rounds and Investor Types
VENTURE CAPITAL (VC)
• Series C
• Amount: from €10m to hundreds (Series D, E, F, G…)
• Goal: financing of acquisitions, improvement and product
development
• Characteristics: mature companies, valid business model, large client
base
• Different type of VC depending on the amount to invest.
• Also co-investment of VCs, Private Equity and Investment Banks
EXIT
• End of the Road: IPO, sale to a bigger company
30. 30
Sources of Value
• Free Cash Flow: the more FCF a company
generates, the HIGHER the value of the
company is
• Growth: the higher the growth of that FCF
is, the HIGHER the value of the company
• Risk: the more risky (uncertain) is the
generation of FCF, the LOWER the value of
the company
Being simplistic, there are 3 sources of value:
31. 31
Valuation is more difficult in the initial stages…
time
$
€
0
SEED
STAGE
EARLY
STAGE
GROWTH
STAGE
EXPANSION
STAGE
EXIT
“The stage & the information available will determine our valuation approach”
STABLE &PREDICTIBLE
SOLID POSTION/STABLE MARKET
SUCCESFUL PRODUCT
CONSIDERABLE ASSET BASE
EXPERIENCED TEAM
DEBT & EQUITY FINANCING
LOWER RISK
LOW VISIBILITY
NEW MARKET TO DEVELOP
NEW PRODUCT/UNCERTAIN SUCCESS
UNEXISTING/FEW ASSETS
NEW TEAM
MOSTLY EQUITY FINANCING
HIGH RISK (UNCERTAINTY)
CASH FLOWS
MARKET
PRODUCT
ASSETS
MANAGEMENT TEAM
FINANCIAL STRUCTURE
RISK
33. 33
One important valuation concept
PRE-MONEY VALUE vs POST-MONEY VALUE
Those two concepts have to be clear before starting a new round of financing
• Pre-Money Value:
Value of the Start-Up BEFORE the investment of the VC (or any investor)
• Post-Money Value
Value of the Start-Up AFTER the investment of the VC
Example
• A Start-up needs €100.000 and a VC is ready to invest that amount for the 20% of the capital
• This means that the value of the company, once the VC has invested the amount of €100.000
will be €500.000, where €100.000 is the 20% of €500.000
• This valuation is the Post-Money Value, after the investment of the VC
• The Pre-Money Value, before the investment of the VC, is €500.000-€100.000= €400.000
34. 34
Some valuation methods: a NON-exhaustive list
time
SEED
STAGE
EARLY
STAGE
GROWTH
STAGE
EXPANSION
STAGE
EXIT
Berkus Method
Discounted Cash Flows
(DCF)
Risk Factor
Summation Method
Comparable
Transactions
Venture Capital
Method
First Chicago
Method
Scorecard Valuation
Method
35. 35
Valuation Methods
BERKUS METHOD
• Developed by Business Angel called Dave Markus in the 90’s
• This method shows a rule to estimate value of a company in a PRE-SALES stage
• The method is based in the believe that the company will generate $20m sales on Year 5.
• If the answer is affirmative, then you have to value according to 5 items
• In this context, the maximum value of a Start-Up company without sales is $2m while if
there are some initial sales is $2,5m
• This method can be useful for entrepreneurs to have an idea of the pre-money value of the
business in a seed/early stage. Obviously is a very subjective method but could be useful to
start negotiations
• Values were prepared for the US market but can be adapted to others
Item Description Value
1 Quality of the idea 0-$500k
2 Existence of a prototype 0-$500k
3 Quality of the team 0-$500k
4 Strategic relationships 0-$500k
5 Launch of product and first sales 0-$500k
BERKUS METHOD
https://berkonomics.com/?p=131
36. 36
Valuation Methods
RISK FACTOR SUMMATION METHOD
• This method is similar to Berkus Method and is
also designed to estimate the value of a
company in a PRE-SALES stage
• The method starts by defining an initial pre-
money valuation as an average of similar
companies in the industry. This information
can be obtained in websites such as: “Angel
Capital Association”
• The initial valuation is adjusted (positively or
negatively) according to 12 criteria (risks
factors) that are valued according to their
perceived risk level
• This method forces investors to think about
the various types of risks which a particular
investor must manage in order to achieve a
lucrative exit
http://blog.gust.com/valuations-101-the-risk-factor-summation-method/
Item Description
1 Management Risk
2 Business Stage
3 Legal/Political Risk
4 Manufacturing Risk Very Low Risk +$500k
5 Sales Risk Low Risk +$250k
6 Fund raising Risk Average $0
7 Competition Risk High Risk -$250k
8 Technology Risk Very High Risk -$500k
9 Litigation Risk
10 International Risk
11 Reputation Risk
12 Succesful Exit Risk
RISK FACTOR SUMMATION METHOD
Valuation of each Item
• This method has also an important
degree of subjectivity but could be
useful to start negotiations between
the founder and the investors
37. 37
Valuation Methods
SCORECARD VALUATION METHOD
• This method is one of the most common methods in the valuation of companies in a
PRE-SALES stage
• The method consists in adjusting the initial pre-money valuation (calculated as an average
of similar companies in the industry) according to predefined criteria
• The different weights of those criteria are set up giving more importance, in a Pre-Sales
Stage, to the founders team and the size of the market, and less to the competitive
environment, marketing and funding needs
http://billpayne.com/wp-content/uploads/2011/01/Scorecard-Valuation-Methodology-Jan111.pdf
Item Description Max Weight Value Factor
1 Founders Team 30% 125% 0,375
2 Market Size 25% 180% 0,450
3 Product / Technology 15% 100% 0,150
4 Competitive Environment 10% 75% 0,075
5 Marketing, Sales channels and associations 10% 80% 0,080
6 Extra financing needs 10% 100% 0,100
7 Other 0% 0,000
Total 100% 1,230
Initial Value 1.500.000
Target Value 1.845.000
SCORECARD VALUATION METHOD Example
38. 38
Valuation Methods
VENTURE CAPITAL METHOD
• This method is used considering the point of view of a Venture Capital investor.
• Most venture capitalists are emotionally unattached to a deal. Their primary and core
issue is simple: "What is the exit strategy and potential internal rate of return (IRR) to
the proposed investment"
• In this method the investor estimates the value that the company will have in the future
(exit value). The exit value can be calculated through different methods: market multiples
(x times Sales, x times EBITDA, market share values, etc.) or projected cash flows
(although sometimes difficult and speculative)
• Once you have the Exit Value it is relatively easy to calculate the Post-Money value of the
company
• There are two main methods:
• Return on Investment (ROI) Multiple (x times the investment)
o Post Money Value = Exit Value / Multiple
• Internal Rate of Return (IRR)
o Post Money Value = PV (Exit Value) = Exit Value / (1+IRR)n
http://www.vcmethod.com/
39. 39
Valuation Methods
VENTURE CAPITAL METHOD (ii)
Example:
• A company expects earnings of $1.000.000 on year 4, when the sale of the company is expected
• The company is negotiating with a VC a capital increase of $1.000.000 to develop growth
• The VC has analyzed market comparables and thinks that they can obtain a valuation of 10 times
the earnings at the exit, so the expected Exit Value is 10 x $1.000.000 = $ 10.000.000
• The required IRR (Internal Rate of Return) of the VC, given the characteristics of the company and
the industry is 20% annually and they also expect to multiply by 3x theirs investment in 4 years
• According to IRR
o Post Money Value = Exit Value / (1+IRR)n = $10.000.000 / (1+20%)4 = $4.018.766
o Pre Money Value = Post Money Value – Investment = $4.018.766 - $1.000.000 = $3.018.766
• According to ROI Multiple
o Post Money Value = Exit Value / Multiple = $10.000.000 / 3 = $3.333.333
o Pre Money Value = Post Money Value – Investment = $3.333.333 - $1.000.000 = $2.333.333
• So, according to this method, the Pre-Money Valuation for this company would be
between $2,3m-$3m
40. 40
Valuation Methods
DISCOUNTED CASH FLOWS (DCF)
• This is the most comprehensive and widely used methodology as it requires the
preparation of financial projections (sales, growth, margins, earnings, investments, new
projects, etc.)
• The value of a company is defined as the present value of the projected free cash flows
(FCF) , capitalized at a Discount Rate (K) that takes into account (among other variables)
the level of risk attached to the industry
• This method also has a degree of subjectivity (projection hypothesis, determination of
risk) is preferred for companies in the growth and expansion stages rather than seed or
early stages where the uncertainty of the projections is definitely higher
FCFYear 1
(1+k)1
Value =
FCFYear 2
(1+k)2
FCFYear n
(1+k)n
+ +……+ Terminal Value+
41. 41
Valuation Methods
DISCOUNTED CASH FLOWS (ii)
Example
HIGHGROWTHLOWGROWTH
LOW RISK HIGH RISK
Company A Year 1 Year 2 Year 3 Year 4
Free Cash Flow 100 125 150 180
Terminal Value 1.800
Total 100 125 150 1.980
Discount Factor 1,25 1,56 1,95 2,44
DCF 80 80 77 811
Value 1.048
K 25%
Company B Year 1 Year 2 Year 3 Year 4
Free Cash Flow 100 125 150 180
Terminal Value 1.800
Total 100 125 150 1.980
Discount Factor 1,08 1,17 1,26 1,36
DCF 93 107 119 1.455
Value 1.774
K 8%
Company D Year 1 Year 2 Year 3 Year 4
Free Cash Flow 100 105 110 120
Terminal Value 1.200
Total 100 105 110 1.320
Discount Factor 1,25 1,56 1,95 2,44
DCF 80 67 56 541
Value 744
K 25%
Company C Year 1 Year 2 Year 3 Year 4
Free Cash Flow 100 105 110 120
Terminal Value 1.200
Total 100 105 110 1.320
Discount Factor 1,08 1,17 1,26 1,36
DCF 93 90 87 970
Value 1.240
K 8%
42. 42
Risk & Discount Rate (K)*
time
R
I
S
K
0
SEED
STAGE
EARLY
STAGE
GROWTH
STAGE
EXPANSION
STAGE
EXIT V
A
L
U
E
0
100%
70%
50%
35%
25%
20%
15%
10% 8%
12%
* Discount Rates showed are just for illustrative purposes
43. 43
Valuation Methods
FIRST CHICAGO METHOD
• This methodology assumes that the development of a Start-Up is highly uncertain and
takes into account different scenarios where projections are prepared.
• Scenarios are typically: high, medium, low
• Each scenario is evaluated according to the DCF methodology and weighted according to
different probabilities of occurrence
• Example
• This method is also preferred for companies in the growth and expansion stages
Scenario DCF Value Weight Value
High 1.750 15% 263
Medium 1.200 60% 720
Low 400 25% 100
Total 100% 1.083
44. 44
Valuation Methods
COMPARABLE TRANSACTIONS
• This method compares prices paid in real transactions where the companies are
comparable to the target company we have to evaluate
• There needs to be a reasonable basis for comparison: similar industries, similar size,
similar markets, etc
• There are different valuation ratios that can be calculated, usually:
• Value divided by Sales Value/Sales
• Value divided by EBITDA Value/EBITDA
• Average ratios of comparable transaction are then applied to the target aggregates
(Sales, EBITDA, etc) to obtain an estimation of value of the company
Transaction Year Value/Sales Value//EBITDA
Transaction A 2016 1,2 7,8
Transaction B 2017 1,5 8,5
Transaction C 2017 n.a. 9,3
Average 1,35 8,5
Target Sales EBITDA
Financials 2.500 450
Multiple 1,35 8,53
Value 3.375 3.840
46. 46
Recap
• Valuation is about estimating Cash Flows, Growth and Risk
• When dealing with Start-Up companies, the information
available and the stage of development of the business will
determine which valuation approach is more adequate
• In seed and early stages Start-Ups, the analysis of the team,
product and market is more important than the financials
• Evaluation of risks is key, as the probability of failure is higher
than the chances of success (less than 10% of Start-Ups celebrate
their 10th anniversary)
• Sometimes simplicity and common sense is a better allied that
complicated valuation models