Alternative Approaches to Valuing Early Stage Companies

Size: px

Start display at page:

Download "Alternative Approaches to Valuing Early Stage Companies"

Francine Watson
5 years ago
Views:

1 1 Alternative Approaches to Valuing Early Stage Companies New Jersey Entrepreneurial Network (NJEN) November 18, 2015 event Mario M. Casabona

2 2 The Objective of this Presentation - What are the value drivers? - How best to consider market conditions? - How much art and how much analytics? But First a little bit about me

3 3 Mario M. Casabona Electrical Engineer w/6 US Patents 25 Years of Entrepreneurial Experience Portfolio of >20 Tech Enabled Ventures Board member of For-Profit and Non-for-Profit Internships at various Corporations and Startups 1972 ITT Avionics - RF Design Engineer 1978 Kuras-Alterman - EW Systems Engineer 1980 Raytheon Department Manager 1982 Electro-Radiation Inc. - Founder and CEO 2004 Honeywell/Aerospace - Director 2007 Casabona Ventures - Founder and CEO 2012 TechLaunch - Founder and CEO

4 4 Funding Eco-System Seed Early Growth Maturity Reinvention Risk Angel Financing Friends, Family, Founders Venture Capital Financing $1M $10M $100M $1B

5 5 My Early Stage Portfolio Companies THE GREAT THE FUTURE THE GONE TechLaunch 3 Oil Drilling Equip. Bluum TechLaunch 2 Oil Exploration Company TechLaunch 1

6 6 Industry Focus Green Tech Internet of Things Security Opportunistic MedTech Telecom MISC.

7 Casabona Ventures Investment Strategy Individual or Co-invest (preferred) Typical Investment $25K - $200K Typical Deal Size $250K to $2Million Typically Deal - 15 to 20% equity Value Added Investor Look for a Month Run Way Equity or Convertible Promissory Note Geographical location within 2 hrs. commute

8 8 NOW TO THE IMPORTANT STUFF

9 9

10 I believe most Early stage investors look for 20% to 25% 10

11 11

12 12 Founder Investor

13 13 TYPES of VALUE (Typical) Book Value Based on Financial Statement Breakup Value Based on Separately selling assets Liquidation Value Based on a Fire Sale or Auction of Assets Fundamental Value Based on forward looking projections (like NPV) Market Value Based on free markets such as Stock Market share price

14 14 Seed & Early Stage Co. Valuations Difficult to Evaluate Just an idea/dream No track history Unproven Team Little to no revenue Probably no IP Most likely an unproven Market need Market and Tech trends favor higher valuations 20 to 30 % more VALUE IS IN THE EYES OF THE BEHOLDER

15 15 The Valuation Options I Favor Berkus Valuation Method (some what arbitrary) By David Berkus Based on $$ Value Assignment Early Stage Valuation Method (financial model) By??? Based on Company Financial Performance Scorecard Valuation Methodology (my favorite) By Bill Payne Based on Market Trends and Metrics

16 16 My Preference Score Card Meth Determine Average Pre-Money Valuations Based on pre-revenue regional valuations Strength of Lead Founder and Team Size of Opportunity Company TAM Product/Technology Status/IP Strength Competitive Environment Marketing/Sales/Partnership Status Need for Additional Investments Customer Feedback

17 17 Scorecard Valuation Methodology Scorecard Valuation Methodology by Bill Payne Metric Weight Company Value (1) Factor Strenght of Lead Founder and Team 30% (0-150%) W x CV Size of Opportunity Company TAM 25% (0-150%) W x CV Product/Technology Status 15% (0-150%) W x CV Competitive Environment 10% (0-150%) W x CV Marketing/Sales/Partnership Status 10% (0-150%) W x CV Need for Additional Investments 5% (0-150%) W x CV Customer Feedback 5% (0-150%) W x CV TOTAL SUM Note 1: Average is 75% Valuation = Mean Pre-Money Regional Valuation X SUM = VALUATION

18 21 EXAMPLES EXAMPLE #1: Using Scorecard Valuation of $3.45 Million. Actual raised > $1Million at a Cap of $5 Million. Observation Market valued higher because of Technology and Market trend. EXAMPLE #2: Using Scorecard Valuation of $2.625 Million. Actual raised > $500K at > $2.5 Million valuation. Observation Actual and Scorecard close enough. Example #3: Using Scorecard Valuation of $2.187 Million. Actual raised > $300K at a Cap of $2 Million. Observation - Actual and Scorecard close enough.

19 Casabona Ventures Selection Criteria Strong and Experienced management team Early stage Pre-Revenue but Revenue Preferred Proof of Concept achieved? Sound business model for building equity IP Strategy for sustainable advantage Reasonable valuation, <$5Million Realistic exit strategy, 3-5 Years Funding needs for initial and subsequent financing Geographic location 1-2 hours driving

23 Contact Information Mario M. Casabona mario@casabonaventures.

20 23 Contact Information Mario M. Casabona Casabona Ventures, LLC

Startup Valuation Methodology SVM. Prabir Mishra Managing Partner SAATRA Capital Advisory

Startup Valuation Methodology SVM Prabir Mishra Managing Partner SAATRA Capital Advisory How do we value a Startup? The most difficult question How do we value? Any clue? Depends on Investor? NO, Yes,