Documente Academic
Documente Profesional
Documente Cultură
Company Value
Terminal Value or VN = P/E x EN or VN = P/R x RN where P/E and P/R are multiples. They can be derived by examining comparable companies, such as companies with explicit market values.
Valuation Example
Find the value of a company in year 5, given income statement data
Sales projected in 5 years $30 MM COGS ($18 MM) Gross Margin $12 MM Sales, G&A expenses, R&D expenses ($7.5 MM) Taxes ($2.0 MM) Net Income (earnings) $2.5 MM
Percent Ownership
bottom line earnings Round #1 #2 #3 Invested $ 1. 5 MM $ 1.0 MM $ 1.0 MM Required ROI 50 % 40 % 25 % Final % Acquired 30.4 % 7.3 % 3.3 %
Referring to nancial references for comparable companies, we nd a P/E = 15. V5= 15 x $2.5 MM = $37.5 MM
Value of Investment
time-value of money and risk/return tradeoff The VC must determine the value of an investment in N years (VIN) based off their ROI: VIN = I0 x (1 + ROI)N
Note: This would leave 59% for the founders, options, or the other shares used for negotiations.
Retention Percentage
For the Rnd 1 investor to end up with 30.4%, they must acquire more at the time of their investment. This is a result of the dilution that occurs in Rnd 2 and 3, decreasing the percentage of the company owned by the previous shareholders as new shares are issued for each round. Retention % = 100% - (nal % of later rounds) %acquired = Final% / (Retention % 100%)
Ownership
How to calculate % of a company VC must own to realize ROI / # shares. %N = (1+ROI)N x I0 / (P/E x EN) How to calculate the # of shares the VC should own (new shares) %ownership = # of shares owned / total # of shares issued total # shares = old # shares (pre-invest) + news # shares (purchased) %ownership = new # shares / (old # shares + new # shares)
New shares issued at each round must be added to the old shares when calculating new shares of a subsequent round. You cannot issue fractional shares of stock.
Example
Example
We calculate the nal price/share at the time of liquidity using the same formula above (price/share = investment / # new shares). However we can also use an alternative version. Price/Share = Value of Company / Total # Shares
(2.4MM x 15) $37.5MM = = $22.12/share (1,000,000 + 515,055 + 124,077 + 56,522) shares 1,695,654 shares
1.5MM
515,000
Back-Check
We can conrm the ROI equals our original desired terms: ROI = (Price per share sold / Price per share purchased)1/N - 1
Round #1 #2 #3 ROI ($22.12 $2.91)1/5 - 1 = 50% p.a. ($22.12 $8.06)1/3 - 1 = 50% p.a. ($22.12 $17.69)1/1 - 1 = 50% p.a.
Example
R1 =100-7.3-3.3 = 89.4 Rough Calculations RD1 -> VI5= 1.5MM(1.5)5 = 11.8MM / 37.5 MM= 30.4% / 89.4 = 34% invest rtn yr my val mkt val dilution own
The results do match the desired returns sought by our investors in each round.
Lessons
1. Seizing the Opportunity
product + strategy leadership
Seize the Opportunity growth vision culture motivation
team
IP Strategy Product Strategy Pricing Strategy Operating Strategy Marketing Strategy
cash team
product + strategy
cash
Bootstrap Angel investors Venture capital Strategic investors Public offerings Recapitalizations
4. IP / Palm Case
IP - types: trade+service marks, copyrights, trade secrets, patents considerations: purpose, terms and protection, notice, process patents - new+novel, useful, non-obvious Forming of Palm - decision to be independent or part of Tandy. problems faced- tandy owned improvements on palmprint, hawkins owned original patent. had many partners from existing reputation, tandy had a huge bureaucracy, existing brand to uphold, couldnt attract talent without equity / stock options.
Channels
Revenue Streams
Dell - vert intgrtn = low cost direct partnerships with sony and intel, zero stock on hand, pull system, customer partnerships, Dell Platinum Councils, direct sales, problems with laptop market, battery choice. future value F = P (1+i)n
Operational Strategies -Integrator - incremental innovtn, position strong, Orchestrator - innovtn breakthru, intense comp, substitutes strong, tech early stges, time-to-mkt critical, Licensor - mkt is new to innovator, brand importances low, IP protected, signif infrastruct