2. Before we start… 3 Exit Analysis – Nordic VCs Decreasing valuations 8 Financial Fundamentals Learning the income statement, balance sheet etc 18 Financial Performance Key ratios and actual performance vs. plans 27 Financial Planning Combine top-down and bottom-up approach and ensure link between plan and budget 34 Valuation Relative and absolute methods. DCF is an absolute method that discounts future cash flows 48 The VC Method He value of a company is a matter of discussion over a cup of coffee 62
7. Reminder - Assignment for every study group! Deadline - the lecture on Options Every study-group should find 10 tweets that: You find interesting / funny That can serve as a either a summary of the lectures or that explores an important topic Upload the Powerpoints at Slideshare and tweet the link in Twitter in MCF10 account Two groups will present – randomly chosen Before We Start
9. Trade sales are most common and the crises has reduced # exits and closed IPO window Exit Analysis – Nordic VCs Source: VentureXpert
10. As well as having reduced the values – IPOs are typically larger than trade sales Exit Analysis – Nordic VCs Source: VentureXpert
11. Decreasing exit value and increased general risk leads to lower valuation for early-stage Exit Analysis – Nordic VCs Source: VentureXpert
12. Know your value inflection points... Exit Analysis – Nordic VCs Market Share Exit Value Proof-of-scale Proof-of-business Proof-of-concept Capital Need Pre-venture Venture
13. Have the end in mind… Exit Analysis – Nordic VCs IPO Competitor Start-up Strategic Supplier Strategic Customer New entrant
14. Approach the exit differently Exit Analysis – Nordic VCs Business strategy to fit exit Trade Sale Identify buyers Position the company Create bid wars Asses timing – capital need and market Business strategy to fit exit Prepare organisation setup Create exposure IPO
15. US exits have higher values – for several reasons Exit Analysis – Nordic VCs Source: Vækstfonden
16. US VCs participate in the most attractive exits of Nordic companies Exit Analysis – Nordic VCs Vækstfonden
17. Why do you think that the exit values are higher for the Nordic companies who has a US VC investor on board? Exit Analysis – Nordic VCs
28. Ratios – using common sense and industry benchmarks Financial Performance
29. The use of ratios relates to life cycle Financial Performance Maturity Public & Seasoned Rapid Growth B,C-round A-round Survival Startup Financing Startup Seed Financing Focus on cash & cost Broad Focus on ratios Focus on cash & profitability
30. I look at traction in Sales Financial Performance
35. The progress for successful venture Financial Planning Market Share Exit Value Proof-of-scale Proof-of-business Proof-of-concept Capital Need Pre-venture Venture
36. and the cash balance Financial Planning High Cash Balance Low Founder and FFF Seed Exit National Venture Int. Venture
37. Time fundraising with value inflection points and before cash balance is too low Market Share Exit Value Proof-of-scale Proof-of-business Proof-of-concept Capital Need Pre-venture Venture High Cash Balance Low Founder and FFF Seed National Venture Int. Venture
39. Key Problem – Missing link between business plan and financial plan Financial Planning
40. If my company is expecting to have this much revenue – then what is my plan to get there? Financial Planning If my plan is this – then what is the likely revenue, cost and capital requirement
41. How to workwith a business plan / budget /anything in life… Financial Planning
42. Top Down – starting with the potential Financial Planning
43. Buttom Up – Building it up from today Financial Planning
44. Financial Planning ...clarify to yourself and potential investors what the assumptions for the budgetare in relation to revenue drivers, cost drivers, investments etc. It is always better to make informed and reasonable assumptionsthan claiming it is difficult to predict the future
69. Calculating the Free Cash Flow Valuation Free Cash Flow to Equity (FCFE) =Net Income - Net Capital Expenditure - ∆in Net Working Capital + New Debt - Debt Repayment Free Cash Flow to Firm (FCFF) = EBIT*(1-tax) Unleveredcash flow - CAPEX - Depreciation - ∆WorkingCapital or Free Cash Flow to Firm (FCFF)= FCFE + InterestExpenditure(1-t)
70. Valuing a firm – the discount factor Valuation WACC = Weighted Average Cost of Capital WACC = Cost of Equity * Equity ratio + Cost of Debt * Debt Ratio 30Y State Bond 4,5% Measure for how closely a stock follows the market
71. Valuing firms – Terminal value (two approaches) Valuation Terminal Value=FCFF n * (1+g)/ (r-g) Perpetuity Growth method FCFF = Free Cash Flow to the Firm n = periods r = WACC g = perpetual growth rate (often 1-3%) Multiple Terminal Value=EBITDA * Peer Multiple Exit multiple Method (1+WACC)n FCFF = Free Cash Flow to the Firm Peer Multiple = Enterprise Value (EV) / EBITDA for comparable company n= Periods
73. The VC Method = The Exit Multiple Method The VC Method Multiple Terminal Value=EBITDA * Peer Multiple Exit multiple Method (1+WACC)n FCFF = Free Cash Flow to the Firm Peer Multiple = Market Cap / EBITDA or Price / Sales for comparable companies n= Periods
74. We consider The VC Method ….. IRR, Return Multiple, AbsoluteReturn, Ownership under the different deal terms... … the case from an overall perspective (team, industry, technology, etc)... However most often the price of a companycomesdown to negotiation over a cup of coffee
75. The Summary Exit Analysis – Nordic VCs Decreasing valuations 8 Financial Fundamentals Learning the income statement, balance sheet etc 18 Financial Performance Key ratios and actual performance vs. plans 27 Financial Planning Combine top-down and bottom-up approach and ensure link between plan and budget 34 Valuation Relative and absolute methods. DCF is an absolute method that discounts future cash flows 48 The VC Method He value of a company is a matter of discussion over a cup of coffee 62
