venture2014 epfl financing
Post on 17-Oct-2014
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Financing in the start-up phase in Switzerland »venture» 2014, Founder's Knowledge Seminar – Financing covers financing in the start-up phase, including financial planning, due diligence and selection criteria usually applied by investors. We also included a tutorial on some of the financial valuation approaches. »venture» 2014 is a Swiss business plan competition to supports young entrepreneurs. It is an initiative of the ETH Zurich, Knecht Holding, the Swiss innovation promotion agency CTI and McKinsey & Company. A3 Angels is a mentoring and seed investment club founded in 2008 by Alumni of the Federal Institute of Technology EPFL to help support startups in Switzerland. Over 30 companies have benefited from this support.TRANSCRIPT
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Financing in the startup phase
Claude Florin, A3 Angels
V.2
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Outline
Start Up Stages and Financing Requirements Business Angels and Venture Capital Company Valuation Equity Share, Dilution & Exiting Getting started
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Entrepreneurs and investors perspectives
Start Up and Funding Stages
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Funding sources
Grants Crowd funding
Business Angels
Venture Capital
Banks Rev
enue
/ E
BIT
DA
BA network syndication
> CHF 50M/year in CH Source: EBAN, BBAA NESTA-BBAA “Siding with the Angels”- 2009
> CHF 100M/year in CH
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What Type is your Start-up ?
Adapted from Newwork LLC
4
Annu
al Sa
les
CHF1M
CHF10M
CHF50M
CHF500M
CHF100M
CHF5M
CHF1 B
Acquisition
Venture capital
Strategic partner
Business Angels
Grants
FFF
Bootstrap
Self-funded
“Investable” business Born to be big Born to Flip Driven to make a
difference
“Life-style” business Work to feed the family Work to live their
passion Social startups
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Funding stages and amounts
Adapted from Neworks, LLC; Startup Genome, Silicon Valley investments
5
Pre-Seed Seed Startup Efficiency
Self-funded 10-50k
Bootstrap Alternative product 30-60% margins
FFF 50-150k
Grants 100k, 300k +
Angel 50-150k
Strategic partner 0.5 – 10 M+
Venture capital Special funds
1M, 5M+
Acquisition Testing required
10-50 M+
Banks x % assets + y % A/R
0.5M
0
3000
6000
9000
VC funding $M
Investment (CHF)
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Business Angels and Venture Capital
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Early-stage investment motivation
Institutional investors VCs : return on investment to investors Corporate VCs : strategic business development Business Angels : Return on Investment is the metric Staying involved (sense of usefulness) Give back to community Affection for entrepreneurs
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Includes altruistic
motivations
Source: Bill Payne
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Early-stage investment in Switzerland
0.0
50.0
100.0
150.0
200.0
250.0
300.0
2007 2008 2009 2010 2011 2012 VC start-up VC seed Business Angels
Source: EVCA/PEREP Analytics, conversion €=1.22 CHF / EBAN 2007-2008 / CTI for 2013, A3 Angels 2009-2012
-50%
(M CHF)
+40% 50M
(growth)
130M
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Networks and members Networks > 300 investors >30-50 million CHF / year >40 funded startups / year Multi-disciplinary
BA Investment per capita CHF / hab
0
5
10
15
€ M/ M # deals/ M
Swiss Business Angels
10
Source : A3 Angels ; Nelson Gray, EBAN Claude Florin [email protected]
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Survival rate US ~40% Survival rate EU ~40%
Financing and entrepreunarial risks
US Bureau of Labor Statistics, TechStars, Y Combinator. Quoted by Mars data accelerator http://data.marsdd.com/accelerators-worth-the-hype/#sthash.cXov6K8B.dpuf
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Investment portfolio model
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Return on Portfolio Investments (1-9) is 3.7X = 26% IRR over 5 Years
Assuming survival rate of 60% and 1 big success – reality is often lower
Portfolio Company
Multiple 5-Year IRR
Portfolio Company
Multiple 5-Year IRR
1 0.0 0% 6 1.6 10%
2 0.0 0% 7 1.6 10%
3 0.0 0% 8 7.6 50%
4 1.3 5% 9 20.0 82%
5 1.3 5% 10 Unknown Unknown
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Internal rate of return (IRR)
.xls function = IRR(values, guess) e.g.: IRR(D1:D:60,0.3/12) monthly or annual compounding
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IRR % Years 1 2 3 4 5 6 7
Mul
tiple
1 - - - - - - - 2 100 41 26 19 15 12 10 3 200 73 44 32 25 20 17 4 300 100 59 41 32 26 22 5 400 124 71 50 38 31 26 6 500 145 82 57 43 35 29 7 600 165 91 63 48 38 32
Multiple Years
1 2 3 4 5 6 7
IRR
%
0% 1.00 1.00 1.00 1.00 1.00 1.00 1.00
5% 1.05 1.10 1.16 1.22 1.28 1.34 1.41
10% 1.10 1.21 1.33 1.46 1.61 1.77 1.95
15% 1.15 1.32 1.52 1.75 2.01 2.31 2.66
20% 1.20 1.44 1.73 2.07 2.49 2.99 3.58
25% 1.25 1.56 1.95 2.44 3.05 3.81 4.77
30% 1.30 1.69 2.20 2.86 3.71 4.83 6.27
35% 1.35 1.82 2.46 3.32 4.48 6.05 8.17
40% 1.40 1.96 2.74 3.84 5.38 7.53 10.5
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Understanding VCs
Who are VCs? Business managers and entrepreneurs turned fund
managers; professional investors What do VCs do? Invest “other peoples money” Analyze hundreds of potential investments Choose only a few per year After investing, VCs become active in the venture
– take seat on the Board of Directors –some take interim executive management positions –get involved in strategic planning or oversight
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VC investments in seed and start-up
29.5
60
.7
0.1
130.
0 0.
0 0.
1 35
4.7
50.3
8.
7 0.
0 69
.9
65.3
27
3.9
55.9
63
.8
56.3
4.
3 3.
0 0.
4 0.
0 84
.8
5.2 15
.4
0.0
103.
2 1.
3 0.
0 47
7.0
0.0
100.0
200.0
300.0
400.0
500.0
600.0
AT
BE
B
G
CH
C
Y CZ
DE
D
K
EE
E
L E
S
FI
FR
HU
IE
IT
LT
LU
LV
M
T NL PL
PT
RO
S
E
SI
SK
U
K
mill
ion
€
M€ EU countries data; 2012
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Source : EVCA
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“Tougher times for VCs” Increased financing
requirements European VCs struggling to
raise new funds Stronger BA co-investment
Decreasing exit valuations Limited trade sale
opportunities Closed IPO markets Longer cycles before exit
VC + BA model today
Source : Diego Braguglia, CTI Start-UP, Angel Days 2012
CHF 100K Founders +FFF + Grants
CHF <2M @ CHF 1-2M
Business Angels + Loans
CHF 1-2M @ <CHF 5M
VC + BAs
…
CHF >2M @ >CHF 5M
VC B
Start >6 mo >12 mo >3 year >8 year
0.5-5X multiple
Trade sale
IPO
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25’000 funded
6’400 exit 980 >€ 100M wins
35 >€1B winners
€ 290B exit value
VC-funded exits : only few succeed
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Source: Quilvest, 2000-2010 quoted by Jean-David Chamboredon, ISAI
1:4 1:700 1:26
Other wins 23%
Winners 77%
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Company Valuation
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Valuation outline
The background Alignment of investors and founders Different perspectives The numbers !! Current early-stage financing trends Business Angels methods for Seed valuation
The Math …. Comparables, Sales Multiple Discounted Cash Flow Product Assets, Replacement Value
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The two perspectives
Align investors with entrepreneurs (drives the subsequent scalability of the business) Roadmap and targets for investor Provides incentives for entrepreneurs
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Motivation and control of
Founders
Risk / reward of Business Investors
Valuation based on experience and intuition
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Com
pany
Investor and Company views
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Inve
stor
Investor‘s return
Dividends + capital
Cus
tom
ers expenses
Cash Inflow
„Venture Capital “ method
„BA“ methods
•Discounted cash-flow , •Multiples (comparables)
Operating revenues earnings
Investor‘s expenses
Operating costs
Capital payment
Cash Outflow
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The Maths – Methods of Valuation
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Market data
Market cap,
similar in the
market
Multiples
financial indices EBIT, …
VC methods, Business Angels
empirical ratios
Performance based
Net assets,
Discounted Cash-Flow
(DCF)
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Europe $ 2.6M Switzerland average= $4.2 M 50% = $1.5 - $8 M
Western EU average= $2.6 M 50% = $1.2 - $3.5 M
USA $ 2.75 Business Angels :
– Median valuation = $2.75 M – Two-thirds $1.0 - $3.0 M – 50% = $1.5 - $3.6 M
VC median = $15M
Valuation trends
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Source : Bill Payne, Angel List, Halo report,
1Q’12 1Q’12 1Q’12 1Q’12 1Q’13 <1M 1M 2M 3M 4M 5M 6M 7M+
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Bill Payne Management team 0-30% 25-40% Size of opportunity 0-25% 20-30% Product & technology 0-15% 10-30% Sales channels 0-10% 5-20% Competitive advantage 0-10% 5-20% Size of this round 0 - 5% 0-5% Need for funding 0 - 5% 0-5%
Worksheet Don’t make product/technology
95%
Business Angels methods
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0-30% Strength of Management Team Impact What is founder’s experience?
+ Many years business experience ++ Experience in this business sector
+++ Experience as a CEO ++ Experience as a COO, CTO, CFO + Experience as a product manager - Experience only as a salesperson of technologist -- Straight out of school
Impact Is the founder willing to step aside, if necessary, for a new CEO?
deal killer Unwilling - Difficult to convince 0 Neutral + Willing
++ Key part of the plan Impact Is the founder coachable?
0 Yes deal killer No Impact How complete is the management team? -- Very incomplete (none identified) - Somewhat incomplete
0 Good start + Rather complete team ++ A complete and experienced management team
0-25% Size of the Opportunity
- Impact What size is the specific market for the company’s product/service?
deal killer <CHF50,000,000 0 CHF100,000,000
++ >CHF500,000,000 Impact What is the potential for revenues in five years?
<CHF30,000,000 0 CHF50,000,000
++ >CHF100,000,000
0-15% Competitive Landscape Impact What is the status of the IP (intellectual property)?
0 Trade secrets only + Core patents pending
++ Core patents issued +++ Complete patent estate
Impact What is the strength of competitors in this market? -- Very strong - Strong 0 Fragmented + Weak
++ Very weak Impact How large are the barriers to entry?
-- Very low - Low
0 Modest + High
++ Very high 0-10% Sales Channels
Impact What channels of sales are in place? -- Haven’t even considered - Many possibilities identified 0 Narrowed to one or two channels + Initial channels verified
+++ Channels established 0-10% Business Stage
Impact In what stage of business is the company? -- Only have a plan - Writing code/in product development 0 Product ready for customer evaluation
++ Positive, verifiable customer acceptance by beta site +++ Customer lined up
0-10% Funding Required Impact What amount of funding is required?
++ CHF250,000 to CHF750,000 + CHF750,000 to CHF1,500,000
0 CHF1,500,000 to CHF20,000,000 (depends on availability of VC capital in region)
BA Methods : worksheet
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Berkus Method Sound idea CHF 0.5 Mio. Prototype + CHF 0.5 Mio. Quality mgt team + CHF 1-2 M. Quality board + CHF 0.5 Mio. Any roll-out, sales + CHF 0.5 Mio. Value Range: CHF 1 - 6 Mio.
Meier Method 1 Manager CHF 1.5 Mio. 2 Managers + CHF 1.5 Mio. Value Range: CHF 1.5 - 6 Mio.
Business Angel methods
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Discounted cash flow (DCF)
Stage Discount (WACC) CAPM
Seed stage 70-100% 4-14%
Start-up stage 50-70% 4-14%
First stage 50-70%
Second stage 35-50%
Later stage 25-40%
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Source: Patrick Frei & Benoît Leleux ; Jean-Pierre Vuilleumier, Angel Days
Company Value = Sum of discounted FCF + discounted CV
CV Continuing Value
t 1 2 3 4 5 ∞ 0
Discounted by capital costs
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DCF valuation issues
DCF is not a suitable method to value start-ups –Valuation >80%derived from Continuing Value –Cumulated FCF negative for planning period –Cost of capital hard to estimate (>40 %) –Discount rates too low ⇒ valuations too high Helps analyze company’s value drivers
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Source : Jean-Pierre Vuilleumier, Angel Day 2013
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Comparable ratios “multiples”
EBIT = earnings before interest, taxes, depreciation and amortization
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P&L Turnover - material expenses - personnel expenses - other operating expenses = operative cash flow
- Depreciation = result of operations
- Net interest paid = EBIT
- Tax = annual surplus / annual loss
Revenue
EBITDA
EBIT
Net Income
Valuation ≈ 1X revenue
Valuation ≈ 5X EBIT
Ratio
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Comparable ratios
Industry EV/EBITDA* EV/EBIT* EV/Revenue**
Biotechnology NA NA 4 Communications Equipment 5.33 7.75 Computer Hardware 4.91 7.40 Consumer Electronics 3.44 6.35 Consumer Finance 42.67 49.19 Electronic Components 3.70 6.39 Electronic Equipment and Instruments 5.62 8.01 Health Care Technology 5.51 10.45 Home Entertainment Software 4.17 31.04 Integrated Telecommunication Services 5.17 10.28 Internet Retail 13.73 18.41 Internet Software and Services 8.03 22.55 2.4 Semiconductor Equipment 4.65 6.37 Semiconductors 6.31 NA Systems Software 6.27 8.90 Business software 2.6 Application software 3 Wireless Telecommunication Services 6.61 12.17
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Source: Damodoran on-line (Europe * ), http://startupvaluation.com (USA **)
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Adjust valuation using “multiples”
© 2004-2010 Neworks, LLC
47
B C
D E F G
What “multiple” would you buy these businesses?
Actual Projected
Today A sa
les (e
arnin
gs)
time
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Discounted Cash-Flow Often over estimates real value Uncertain assumptions Not applicable for growth
companies
Multiples Simple– no negative numbers Time value not considered Just a high-level forecast
Every method gives a different valuation
Source : A3 Angels
8% 10% 15%35% 4,850 5,144 6,13540% 3,351 3,517 4,04845% 2,359 2,458 2,76650% 1,675 1,737 1,92655% 1,190 1,230 1,351ris
k ra
tio
annual growth of the residual value
year2011 2012 2013 2014 2015 2016
0.5 0 250 1,000 2,500 5,000 10,0001.0 0 500 2,000 5,000 10,000 20,0001.5 0 750 3,000 7,500 15,000 30,0002.0 0 1,000 4,000 10,000 20,000 40,0002.5 0 1,250 5,000 12,500 25,000 50,000
year2011 2012 2013 2014 2015 2016
5.0 neg. neg. neg. 2,500 10,000 25,0006.0 neg. neg. neg. 3,000 12,000 30,0007.0 neg. neg. neg. 3,500 14,000 35,0008.0 neg. neg. neg. 4,000 16,000 40,0009.0 neg. neg. neg. 4,500 18,000 45,000
turn
over
mul
tipE
BIT
-Mul
tiple
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Need to adjust valuation for Debt
Equity market value (number of shares X share price)
+ Net Debt
(+ net interest bearing financial liabilities – liquid assets )
= Enterprise Value
(adjusted market value)
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Assets Liabilities
capital assets
working capital (assets)
liquid assets
Equity
Debt
working capital (liabilities)
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Valuation: VC method
Source : Jean-Pierre Vuilleumier, Angel Days 2012 © CTI -Invest
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Investor’s View (Venture Capital Method) IRR (Internal rate of return)
Sum discounted CF = 0 Value
t 1 2 3 4 5 6
Define the target Internal Rate of Return (IRR) Estimate capital requirement (FCF analysis) Estimate time to exit (5-7 years) Estimate exit value (transactions or multiples)
Backward calculation of the required share
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Method Specification of required IRR Rate of return objective,
e.g. 30%. or Target multiple of the investment
e.g. 7.5X Evaluation of exit Time Anticipated valuation at exit
e.g. 25’000
Required share of equity Investment 500targeted return (7.5 X) 3,750
share of the Business Angels 15% valuation in Seed financing round 3,333
total proceeds at exit 27,500 - return preference of VCs 2,500return at pro rata allocation 25,000return share of Business Angels 3,750
Venture Capital Method
Source : A3 Angels
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Equidam Equitynet
On-line tools for startup comparison
Source : http://www.equidam.com/ : https://www.equitynet.com/crowdfunding-tools/startup-valuation-calculator.aspx ; www.worthworm.com
Worthworm
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Equity Share, Dilution & Exiting
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Definitions : pre / post money valuations
Company stage Pre-Seed Seed A-round B-round
Entrepreneur ownership 100% 80% 64% 51%
Seed investor ownership for CHF 250K 20% 16% 13%
A-round investor ownership for CHF 1M 20% 16%
B-round investor ownership for CHF 3M 20%
Pre-money valuation CHF 1M CHF 4M CHF 12M Post money valuation CHF 1.25M CHF 5M CHF 15M
Entrepreneur value CHF 1M CHF 3.2M CHF 7.7M
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Dramatic increase in the value of the company and value of your share The relevant question is not “how much of the pie do I own?”
rather “how big is the pie?”
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Dilution and returns at Exit
Company stage Investment Ownership Value Multiple
Entrepreneur ownership - 51.2% CHF 26M -
Seed investor ownership CHF 250K 12.8% CHF 6M 26X
A-round investor ownership CHF 1M 16% CHF 8M 8X
B-round investor ownership CHF 3M 20% CHF 10M 3X
Total CHF 4.25M 100% CHF 50M -
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•No investors subsequent to Round B • 7 years after seed investment, Company acquired for CHF50M
•Seed Investor’s IRR is ~60% • Depending on time of investment, Round A & B investors likely IRR 30-50% • Everyone happy!
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Valuation & Dilution scenario
Adapted from Neworks, LLC
66
The hypothetical high-tech start-up companyDilution of ownership and Increase in Valuation from idea through cash-flow positive company.
Time zero 6-12 months Year 1 Year 2 or 3 Year 3 or 5 Seven to ten years later
Valuationpre-money 750,000$ 83.3% 1,500,000$ 75.0% 3,000,000$ 60.0% 10,000,000$ 66.7%investment 150,000$ 16.7% 500,000$ 25.0% 2,000,000$ 40.0% 5,000,000$ 33.3%post-money $500,000 100.0% 900,000$ 100.0% 2,000,000$ 100.0% 5,000,000$ 100.0% 15,000,000$ 100.0% $56,000,000 100.0%
Share price (rounded) 0.27$ 0.40$ 0.67$ 1.00$ 2.00$ 7.47$
Authorized sharesCommon 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000
Issued sharesUniversity/Inventors 93,750 5.0% 93,750 4% 93,750 3% 93,750 1.9% 93,750 1.3% 93,750 1.3%Founders 1,781,250 95.0% 1,781,250 79% 1,781,250 59% 1,781,250 35.6% 1,781,250 23.8% 1,781,250 23.8%Pre-seed investors 375,000 16.7% 375,000 12.5% 375,000 7.5% 375,000 5.0% 375,000 5.0%Seed investors 750,000 25.0% 750,000 15.0% 750,000 10.0% 750,000 10.0%VC round A investors 2,000,000 40.0% 2,000,000 26.7% 2,000,000 26.7%VC round B investors 2,500,000 33.3% 2,500,000 33.3%Total 1,875,000 100.0% 2,250,000 100.0% 3,000,000 100.0% 5,000,000 100.0% 7,500,000 100.0% 7,500,000 100.0%
Value of holdingsUniversityInventors $25,000 $37,500 $62,500 $93,750 $187,500 $700,000Founders $475,000 $712,500 $1,187,500 $1,781,250 $3,562,500 $13,300,000Pre-seed investors $0 $150,000 $250,000 $375,000 $750,000 $2,800,000Seed investors $0 $0 $500,000 $750,000 $1,500,000 $5,600,000VC round A investors $0 $0 $0 $2,000,000 $4,000,000 $14,933,333VC round B investors $0 $0 $0 $0 $5,000,000 $18,666,667Total $500,000 $900,000 $2,000,000 $5,000,000 $15,000,000 $56,000,000
Deliverables Small team IP assessment Space The remaining Design freeze 4 or 5 years of sales growth:at the end Plan License A few key milestones key milestones Manuf'g scale up Sales of $30 Mof the stage: Family collateral Tech transfer (Prototype, market indicators) OEM partner collateral Market'g & Sales ready Earnings of $7 M
Seed collateral VC collateral Distribution 8 x Earnings multiplier
The beginningAt founding
Milestone 1Pre-seed round
Milestone 2Seed round
Milestone 3VC Round A
Milestone 4VC Round B
Milestone 5"Peak Sales"
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Target equity at exit is not a function of initial equity stake but the reflects of the company strategy Equity at exit depends on:
– Technology success, – Negotiation power, – Market, – Competition.
The name of the game … is not to minimize dilution at each stage of a company’s existence But to maximize the value
of your share at the end of the process.
How to maximize value
Source : Diego Braguglia, CTI Start-UP, Angel Days 2012
Harvard Business School, Financing Entrepreneurial Ventures
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Creative Negotiations
Let the Market Set Price Take “convertible note” Offer anti-dilution clauses
Performance Based Valuations If pre-determined milestones achieved, valuation is
CHF xM If not, valuation is CHF yM
Offset high valuation with preference Preferred shares with liquidation preference
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Convertible Loan
Subordinated convertible loan –Mandatory conversion upon equity round –Same terms as equity round with x% discount Avoids valuation when
–company is young –fair valuation difficult –Bridge loan required Easy to implement Generally not well received by future equity
investor
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Source : Peter Pfister, Angel Day 2013
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Anti-Dilution Provisions
Principle: –Shareholders agreement clause –In case of a down round the dilution is
absorbed by the founders (Common Shareholders).
Several ways to calculate (full rachet, weighted
average) Adds responsibility on the founders to create
value
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Source : Peter Pfister, Angel Day 2013
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Principle: – Shareholders agreement exit
clause : – Preferred Shareholders =
investors – Get paid x times (usually 1X )
investment before other payouts.
Improves returns Saves a % of investment in
case of failure A question of fairness
Liquidation Preference
Source : Peter Pfister, Angel Day 2013
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Liquidation preference example
Source : Peter Pfister, Angel Day 2013
Investment CHF 300 K Pre-Money CHF 1,200 K Founders share 80% Investor share 20% Exit value CHF 600 K 1,200 2,400 3,600 4,800 Liquidation preference 0 X 0 X 0 X 0 X 0 X Payout founders CHF 480 K 960 1,920 2,880 3,840 Payout investor CHF 120 K 240 480 720 960 Multiple 0.4 X 0.8 X 1.6 X 2.4 X 3.2 X Liquidation preference 1 X 1 X 1 X 1 X 1 X Payout founders CHF 240 K 720 1,680 2,640 3,600 Payout investor CHF 360 K 480 720 960 1,200 Multiple 1.2 X 1.6 X 2.4 X 3.2 X 4.0 X Liquidation preference 2 X 2 X 2 X 2 X 2 X Payout founders CHF - K 480 1,440 2,400 3,360 Payout investor CHF 600 K 720 960 1,200 1,440 Multiple 2.0 X 2.4 X 3.2 X 4.0 X 4.8 X
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Getting started
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Investment process
4-6 Months
50% Screening
Evaluation
Due diligence
Investment 1%
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Early early stage investors
Swiss-based VCs International VCs Swiss-based BANs Aravis Atlas Venture Mountain Partners Group
Biomed Invest Baytech Venture Go Beyond Ltd BV group Creathor Venture Business Angels Suisse (BAS) Core Capital Drapper Investment Bio Valley BAC
EPS value plus Dpixel Start Angels Network Invision Earlybird b-to-v New Value Emertec A3 Angels Redalpine Venture Partners NBGI Ventures Club Valaisan des BA Vi Partners Index Ventures Blue Ocean Ventures
Aventic OCAS Ventures BSI health Capital Sofinnova Eurofin Capital / Polytech ventures Swarraton Partners
Defi gestion Target Partners Fongit Wellington Jade invest Polytech Ventures Tschudin+Heid Vinci Capital
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Steps in the BA investment process
Entrepreneur Business Angel
Source: fiban.org
Introduction Pitching
Deal flow identification
Negotiations of business opportunity
Valuation discussions Due diligence Business
plan
Investment readiness
Shareholder agreement Financing
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Steps in the VC investment process
Source : Guide to private equity, BVCA / PWC, 2003
Stage Evaluating B. Plan Due diligence Negotiation Monitoring EXIT
Entrepreneur Prepare Business Plan Contact investors
Provide information
Disclose all relevant business information
Provide periodic management accounts Communicate with investors
Entrepreneur & investor
Meet to discuss BP Build relationship Outline terms Liaise with external consultants and accountants
Negotiate final terms Document constitution and voting rights
Investor Review the Business Plan
Conduct enquiries Value the business Consider financing structure Initiate external DD
Draw up completion documentation
Seat on board ? Monitor investment Constructive input Involvement in major decisions
Reports Business Plan Offer letter Consultants reports Accountant reports
Disclosure letter Warranties and indemnities Memorandum and articles of association Shareholder agreement
Management accounts Minutes of boards and other meetings
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Negotiations
Why do deals fall through? entrepreneur struggling to let go of control limited role models (investor-backed
companies) inexperienced counsel “shoppers”, there’s a better deal out there two sides of the table can’t agree on “valuation
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Select an investor who understands your business
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Thank you
Your questions ? Or case study
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Case study
Real Start-up Company Founded in 2009 First financing in 2011 (BA) Successful market entry Closed financing round in spring 2013 Financial planning as well as valuation
performed with Fintool 8.0
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Source : Jean-Pierre Vuilleumier, Angel Day 2013
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Case study
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Source : Jean-Pierre Vuilleumier, Angel Day 2013
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DCF calculation
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Source : Jean-Pierre Vuilleumier, Angel Day 2013
CV
Growth rate and Return on invested capital (ROIC)
estimated after the planning period
(Copeland) Continuous value (CV)
represents 80 % of total Present value (PV).
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WACC cost of capital calculation
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Source : Capital asset pricing method (CAPM); , Jean-Pierre Vuilleumier, Angel Day 2013
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Valuation sensitivity
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Source : Jean-Pierre Vuilleumier, Angel Day 2013