New Venture Financials and Business ValuationOne Asset Management
Limited
New Venture Financials and Business Valuation
To share knowledge and experience of the venture capital industry in term o
f new venture capital financials and bus iness valuation by venture capitalists’ p
oint of view in order to give fundament al knowledge for further study or practi
cal use in the real business operation.
Objective
ResearchGrant
Business Expansion
Market Expansion
Product Launch
Product Development
IdeaConception
AngelVenture Cap
VentureCapital
IPO
Business Cycle and Financing Need
DebtFinancing
Sources of Funds for Enterprises
Debt Financing
- 1. Short Term Loan : Working Capital- CCCCCC CCCCCCCC/ , / ,- Packing Credit- CCCCCCCCC
- 2. :Long Term Loan Fix Asset- -CC CCCCCC(310)- - Lease Financing (3 5 years)
New Venture Financials and Business Valuation
Sources of Funds for Enterprises 3. Debenture : Working Capital / Fix ACCCC
- CCCCCCC CCCCCCCCC- CCCCCCCCC CCCCCCCCC- CCCCCCCCCCC CCCCCCCCC
Equity Financing1. Preferred Stock2. Common Stock
New Venture Financials and Business Valuation
Institutions Supplying for financingDebt Financing
1. CCCCCCC CCCCCCC CCCC’ 11. The Government Saving Bank
12. Small and Medium Enterprises DevCCCCCCCC Bank of Thailand (SMEs Bank)
13. Bank for Agriculture and Agricultur al Cooperatives
2. Commercial Bank
New Venture Financials and Business Valuation
Institutions Supplying for financing3. Other Financial Institutions
3.1 Finance Company3.2 Leasing Company3.3 Factoring Company
New Venture Financials and Business Valuation
Institutions Supplying for financingEquity Financing1. Government’s Venture Capital Fund 1.1 SMEs Venture Capital Fund : ONE ASSET MANAGEMENT LIMITED
1.2 The Office of Small and Mediu m Enterprises
Promotion 1.3 National Innovation Agency2. Venture Capital Company 2.1 Venture Capital Management SecuritiesCo. 2.2 General Venture Capital Company
New Venture Financials and Business Valuation
Financial Aspect of Business Plan
Financial Plan should provide the following information for investors/ lenders:
Sources of FundsUses of FundsProjected financial position of the firm (Income Statement, Balance Sheet, Cash flow statement)
The Plan should also include how the funds/loans can be repaidThe Plan should be at least 3-5 years
New Venture Financials and Business Valuation
Venture Capital as a New So urce of Fund
Venture Capital is one of the equity financing sources of funds in order to invest in good potential businesses. Venture Capital will invest in enterprises in term of preferred stock or common stock as a partner of the enterprises and hold the investment for a specific period of time.
New Venture Financials and Business Valuation
What VC are looking for? Historical financial data
Good and undated financial statementC CCCCCCCCCC CCCC CCCCCCC CCCCCCCCCC :
Revenue recognition (whether there are conditions on sales)
R & D C CCCCCCC CCCCCC CCCC CCCC:
Often forgotten costs : financing cosC
New Venture Financials and Business Valuation
What VC are looking f or? (Cont’d) Cash Flow
Collection Period Monthly Cash Flow for the fir
CC CCCCCCCCCC CCCC CCCC CCCCCCCCCC
New Venture Financials and Business Valuation
How Does Venture Capital D etermine Business Value ?
Qualitative Business Valuation•Analysis of Management• Reviewing Personnel and Compensation• Analysis of Marketing and Sales - Market Segment - Market Trend - Market Share • Investigating Product• SWOT Analysis
New Venture Financials and Business Valuation
How Does Venture Capital Determine Business Value ? SWOT ANALYSIS
S CCCCCCCC W CCCCCCCCC
O CCCCCCCCCCCC T CCCCCC
New Venture Financials and Business Valuation
Quantitative Business Valuation• Analysis of The Financial Statements and Projections
- Profit and Loss Statement- Balance Sheet Statement- Cash Flow Statement- Source and Use of Fund- Ratio Analysis
New Venture Financials and Business Valuation How Does Venture Capital Determine Business Value ?
Methods of Quantitative Business Valuation
- Book Value - P/E Ratio- Discount Cash Flow
- Price to Book Value
New Venture Financials and Business Valuation How Does Venture Capital Determine Business Value ?
Financing Issues for Software BusinessHigh investment in human capital in initial stageDebt financing difficult due to lack of collateralDifficulty in valuation of IP for venture capital financingUnderstanding of the business by venture capitalist
New Venture Financials and Business Valuation
Preparation for Getting FinancingCommon problems faced:
Efficiency in operationBusiness knowledgeWeak financial backgroundFinancial Statement not addressed properlyUnderestimation of support costsLack of legal expertise, especially contract lawsHigh valuation commanded
New Venture Financials and Business Valuation
Preparation for Getting FinancingNo risk assessment (unfinished contract, cost overrun, copyright protection, etc.)
Overestimation of revenuesAccounting issues, especially cost allocationHuman resource issues not addressed properlyOverseas opportunity to go beyond domestic valuation
New Venture Financials and Business Valuation