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Presented by Gerard Buckley on February 4, 2014
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V A L U AT I O N o f P R E - C O M M E R C I A L I Z E D C O M PA N I E S
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
AGENDA
FAIR MARKET VALUE
INTRODUCTION
REVENUE COMPANIES
BUSINESS VALUATIONS
INVESTOR EXPECTATIONS
PRE-COMMERCIALIZATION
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
MLA CONNECTS
Our mandate is to connect experienced accredited investors, and the brightest, most passionate entrepreneurs in an effective investment process.
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• I am Gerard Buckley– Founder & CEO of Jaguar Capital an Advisory Practice for Growth
Companies in Governance, Financial Management & Financial Structuring– Chairperson of Board of Directors, Maple Leaf Angels Corporation &
Investor in eight early stage companies– Certified Corporate Director of the Institute of Corporate Directors– Previously Entrepreneur in Residence with Incubes (An Internet Company
Accelerator)– Member of Small & Medium Enterprise Committee of The Ontario
Securities Commission– Investment Committee of MSV University, Halifax, NS– 32 yr. Career with Scotia Capital as a Financial Risk Management Advisor to
Fortune 200 Companies: Rogers, Irving Group, Empire Co., Four Seasons, Bruce Power, OPG, Province of Ontario, Ford etc.
Who Am I
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
VALUATION AGREEMENT OF
PR ICE TO BUY AND SELL
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
INTRODUCTION
The Valuation of a company is the price to buy the entire company whether it is public or private. It is usually quoted in the price of a share; however, for a private company you need to know the total value usually stated as Pre- Money Valuation before investment and Post- Money Valuation or Market Capitalization after investment.
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
FMV-FAIR MARKET VALUE
``The price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arms length in a open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts.``
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
REVENUE COMPANIES
1. Multiple of EBITDA 2. Discounted Cash Flow3. Comparable transaction method4. Book Value5. Total Enterprise Value6. Market Value7. Liquidation Value: Forced or Orderly
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
BUSINESS VALUATIONS
• Every valuation and Pricing is unique
• In a M&A Transaction price or valuation comes down to the strategic value the acquirer brings to the transaction & the portion paid to the target
• 65% of business owners don’t know what their company is worth
• 85% have no exit strategy
• 75% of their worth is tied up in their business
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
VALUATION – PRE-COMMERCIAL IZATION
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
INVESTOR EXPECTATIONS
• , the most active M&A buyer paid < 20 mil with <20 people for 90 % of it`s targets
• An Angel Investor has an expectation of 10X
• Survey conducted among USA angel groups by Bill Payne in 2012. Average Pre-Money valuation is 2.96m & Median is 2.75m an increase over`11
• The usual range of valuation for an pre- commercialized company 1 to 3 mil
• A Convertible Debenture (last weeks lunch and learn) is a way to take the valuation discussion off the table
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
VA LU AT I O N – H O W S U B J E C T I V E I S I T ?
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
INVESTOR EXPECTATIONS
• At the end of the day valuations are subjective• Many VC`s will not discuss investment until a price is set• A high valuation may create an orphaned financing or even worse a future
down round• Businesses are sold not bought, a business should be preparing for an exit
from the start• A company needs to understand the potential buyers universe (Financial vs.
Strategic buyers) and what they are looking for.
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
INVESTOR EXPECTATIONS
• A USA with concerning terms will have negative pressure on valuation• Valuation is calculated on a Fully Diluted Basis – all options, warrants,
convertible debentures, vesting, etc. are converted for the purposes of presenting the `Capitalization Table` referred to as `Cap Table`
• Valuation is caveat emptor – buyer beware. More investors have lost more money because they overpaid for a stock than has been lost due to fraud. (Warren Buffett and Benjamin Graham = Value Investing)
• Concentrated sales is negative for valuation• Bootstrapping and obtaining traction will assist a company build valuation
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
PRE-COMMERCIAL IZATION METHODS
1. Venture Capital Method (ARI)
2. Scorecard Method (David Berkus)
3. Risk Factor Method (ARI)
4. The Shamrock Method (Buckley)
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
VENTURE CAPITAL METHOD
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
SCORECARD METHOD
Management - quality team in place, except sales
Opportunity - appears to be a huge opportunity
Product – disruptive technology, prototype done
Sales – team not in place , channels unclear
Competition – many small players, lack technology
Other Factors – foreign Market, partners
30%25%15%10%10%10%
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
RISK FACTOR METHOD
• Stage of the business• Legislation/Political risk• Manufacturing risk• Sales and marketing risk• Funding/capital raising risk• Competition risk• Technology risk• Litigation risk• International risk• Reputation risk• Potential lucrative exit
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
SHAMROCK METHOD
• Credit for Actual Invested Capital (no sweat equity)
• Up to 250K for Management Team
• Up to 250K for Proof of Concept or Product Validation
• Up to 250K for Disruptiveness of Technology & Patents
• Up to 250K for Business Model, pricing, etc.
• Up to 250K for other including advisors, governance, financials, company infrastructure, etc.
• Up to 250k for go to market strategy, traction, growth…
• Credit for 2 years of revenue run rate up to 3 years
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Contact Information
Gerard Buckley, BBA, FICB, ICD.DPresident and CEO Jaguar Capital Inc.(C) 416-884-9522(W) 416-646-6789
g.buckley@jaguarcapital.ca
www.jaguarcapital.ca
Twitter: @jaguarcapital Twitter: @gerardbuckleySlideshare: Jaguar Capital
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
THANK YOU
MLA SPONSORS & GOVERNMENT PARTNERS
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CONTACT
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