|
INDUSTRY NEWS
Valuating Non-Revenue Companies
Bob Chaworth-Musters helps member companies looking for angel investment get ready for the Angel Forum, April 24, 2007.
The traditional methods of valuating companies that has been based upon discounted cash flow and multiplier methodology, has worked well for companies with revenues.
However for non-revenue companies, successful angel investors have either used quick and easy rules of thumb or put off the valuation until a further event occurs.
The writer is not a Chartered Business Valuator and the following includes a summary from the Angel Investing bible by Amis & Stevenson, modified to reflect today’s market environment
Quick and Easy:
- The modified Berkus Method values an early stage deal in $500k increments for a sound idea, a prototype, a quality management team, a quality board and any sales. The resulting value ranges between $500k and $2.5 million. So a company with a pain killer concept, a completed prototype, but an in-complete quality management team, no sales and a weak board, may have a maximum value of $1 million.
- Never invest in a non-revenue start-up valued over $3 million is based upon the question of how many entrepreneurs can build a $30 million company. The math is that if you invest any amount at a $3 million valuation and there is no further dilution, a successful company worth $30 million generates 10 times the initial investment. If one out of 10 of the investor’s investments (invested on same basis) succeed and the rest fail, then the investor has only broken even. But if one invests initially in a lower $2 million valuation that becomes $30 million with the same investment and success rate above, the investor has a nice “portfolio” profit.
- $1 million is the average valuation for university spin-off companies with interesting patentable science and the scientist.
- Reverse engineering approach asks how much do you need for the next 12-18 months and that equates to roughly 30%-40% of the company. Used by both seed venture capital firms and angel investors.
- Rule of Thirds is a common VC rule where at the early-stage round, 1/3 should go to founders, 1/3 to capital providers and 1/3 to management. If $500k is raised, then 1/3 of the equity goes to the investors and the post money valuation is $1.5 million.
- $2.5 million Angel Maximum Standard Valuation is based upon the experience of successful angel investors who have said that this is the maximum value for start-ups that have a reasonable chance of making it and where the angel does not play a controlling role. Values above this are for either quite advanced companies that are ready for VC firms or quite unrealistic.
Value Later
The angel invests capital with the understanding that her terms will be the same as those in the incoming VC round, but at a discount to that round of 20% to 50%. The initial agreement takes the form of loan debenture payable in 12 months and convertible into shares at the agreed upon discounted price. The entrepreneur doesn’t have to worry about valuation, knowing that a professional will later put an appropriate valuation on the business.
Bob Chaworth-Musters in 1997 initiated the BC Angel Forum™ (www.ANGELforum.org) where emerging companies present to private equity investors. Director of Canada’s National Angel Organization. Investor Ready seminar in Vancouver on March 26 and 21st Angel Forum on April 24, 2007. © 2007
|
|
SPIF 2007 TESTIMONIALS
"The constructive feedback, both during preparation and through the event itself, has been extremely valuable and has helped us secure our early stage financing in 2006..."
Guylain Roy-MacHabée, President & CEO,
Rx Networks, Inc.
"Being chosen to present at the WINBC's Service Provider Investment Forum 2007 provided an opportunity to share our vision with about 30 world leading telecommunications companies at the same time - something that would have been impossible without the proactive facilitation of WINBC . Thanks."
Andre Brisson,
President & CEO,
Whitenoise Laboratories Inc.
WINBC EVENTS
momovan
LBS Future or Fad? - Vancouver, BC
March 12, 2007
WINBC PARTNER EVENTS
BCNet
Call for Entry: Poster Session
Deadline: March 23, 2007
massive
Technology Show
March 28, 2007
ostec
Guy Kawasaki to speak at 2007 SVIA's
Kelowna, BC
March 29, 2007
BCNet
2007 Conference - Making Connections: Sharing Knowledge for Greater Innovation
April 17 & 18, 2007
BC Angel Forum
21st Angel Forum - Vancouver, BC
April 24, 2007
INDUSTRY EVENTS
Mission to Turkey
Telecom Sector Market
Visit to Turkey
February 25 - March 2, 2007
Doing Business in US
Langley, BC
March 15, 2007
Canada Pavilion @ CTIA
Orlando, Florida
March 27 - 29, 2007
Canada Pavilion / ICT Partnering
Mission to Hong Kong ICT Expo - Hong Kong
April 13 - 16, 2007
Wireless Trade Mission to Hong Kong
International Trade Opportunies to
Hong Kong & Taiwan
April 16 - 20, 2007
MEM 2007
Mobile Entertainment Market
Monte Carlo
June 5 - 6, 2007
communicasia 2007
Canada @ CommunicAsia 2007 - Singapore
June 19 - 22, 2007
EXPOCOMM 2007
Canada @ ExpoComm 2007
Buenos Aires, Argentina
October 9 - 12, 2007
|
© 2007 WINBC. All Rights Reserved.