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On 30 July 2014, George Mathew, Managing Partner at Futurebooks shared his take on the art and science of valuation for #startups. Sharing both tools used to determine the numbers as well as stories of how savvy founders determined their valuation, it was a mix of how to walk the talk and talk the walk.
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Prepared for Founders Drinks,e27
As of July 2014
THE ART &SCIENCE OF VALUATION
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LAUNCH YOUR BIG IDEA
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Incorporation structuring , company secretary, work passes
Bookkeeping, financial reports, company tax, ESOPs
Internal audit, valuation
WHAT DOES FUTUREBOOKS DO?
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OKR
ObjectiveTo explore company valuation in the Asian context
Key Results1. Early stage valuation – one
methodology2. Growth valuation – one
methodology
EARLY STAGE VALUATION
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SCORECARD VALUATION METHODOLOGY
Find relative comparatives from the same region
AngelList is a good source
Establish an average pre-money valuation
Be conservative
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SCORECARD VALUATION METHODOLOGY
Source: Bill Payne and Gust.com
COMPARISONFACTOR
RANGE TARGET COMPANY
FACTOR
Strength of Entrepreneur and Team 30% max 125% 0.3750
Size of the Opportunity 25% max 150% 0.3750
Product/Technology 15% max 100% 0.1500
Competitive Environment 10% max 75% 0.0750
Marketing/Sales/Partnerships 10% max 80% 0.0800
Need for Additional Investment 5% max 100% 0.0500
Other factors (great early customer feedback)
5% max 100% 0.0500
Sum 1.0750
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SCORECARD VALUATION METHODOLOGY
AVERAGE PRE-MONEY VALUATION $3M X FACTOR 1.0750 = 3.225
GROWTH VALUATION
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GROWTH VALUATION
Credit: Aswath DamodaranStern School of Business, New York University
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FIRM VALUE METHODOLOGY
Cashflow forecasted Discount rate at between 30-60% depending on stage of companyNet present value arrived at Terminal Value for years thereafterFirm Value = Net Present Value + Terminal Value (Assumes no debt)
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FIRM VALUE METHODOLOGY
Terminal Value = Final Projected Year Cash Flow * (1 + Long-Term Cash Flow Growth Rate)
(Discount Rate – Long-Term Cash Flow Growth Rate)
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FIRM VALUE METHODOLOGY0.3
2014 2015 2016 2017 2018
Revenue 120,000 180,000 252,000 327,600 393,120 Growth Rate 1.5 1.4 1.3 1.2Cashflow margin 0.6 0.6 0.6 0.6 0.6
Cashflow 72,000 108,000 151,200 196,560 235,872 Net Present Value $320,459
= NPV(0.3, Cashflows 2014-2018)
Terminal Value 2,830,464
= [Cashflow 2018 * 1,2] / [0.3 – 0.2]
Firm Value (EV) $3,150,923
= Net Present Value + Terminal Value
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FIRM VALUE METHODOLOGY0.6
2014 2015 2016 2017 2018
Revenue 120,000 180,000 252,000 327,600 393,120 Growth Rate 1.5 1.4 1.3 1.2Cashflow margin 0.6 0.6 0.6 0.6 0.6
Cashflow 72,000 108,000 151,200 196,560 235,872 Net Present Value $176,589
= NPV(0.6, Cashflows 2014-2018)
Terminal Value 707,616
= [Cashflow 2018 * 1,2] / [0.6 – 0.2]
Firm Value (EV) $884,205 = Net Present Value + Terminal Value
ART OFVALUATION
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THINGS A LITTLE BIRD TOLD ME
“Things a Little Bird Told Me: Confessions of the Creative Mind”by Biz Stone, the co-founder of Twitter
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LET’S TALK
om
@futureb00ks
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TERMS OF USE
Restrictions on Use of Contents1. Except as otherwise provided, the Contents of this Document shall not be reproduced, republished, uploaded, posted, transmitted or otherwise distributed in any way, without the prior permission of FUTUREBOOKS SINGAPORE PTE LTD. To use any parts of the Contents of this Document, the user must seek permission in writing, stating the c Contents for use; intent of use; manner of use; time frame of use and identity of the user. FUTUREBOOKS SINGAPORE PTE LTD reserves the right to refuse permission without declaring reason(s); and/or if information submitted by user is deemed insufficient.2. You may view, download and print the Contents if:(a) the Contents are used for non-commercial or personal use only and will not be copied or posted on any network computer or broadcast in any media, and(b) no alterations, additions or modifications of the Contents are made in any way(c) due acknowledgement is given to “FUTUREBOOKS SINGAPORE PTE LTD” and citing the sources for the relevant data extracted.3. Modification of any of the Contents or use of the Contents for any other purpose will be a violation of FUTUREBOOKS SINGAPORE PTE LTD ‘s copyright and other intellectual property rights. Graphics and images on this Document are protected by
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