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Startup Finance: Valuation
If you are ever only going to take 1 class then let this be the class you take!
About: Learn how to value a startup.
More than likely your next big opportunity will come from a Startup. Learn how to value a startup by attending this startup finance class. Startups have a global financial impact. Don’t miss out on the next big opportunity and learn how to value a startup before its too late. More than likely in the near future you will either work for, invest in or consult with a startup. Understanding the nature of startup valuation is key to success within the financial world. Startup Finance fuels global economic activity and lies at the core of all financial success. Take this revolutionary finance class and learn from the best.
Finance is a powerful global force and valuation lies at its core. Valuation makes or breaks a company. It is critical to understand valuation as an investor, entrepreneur, consultant and employee.
There are many circumstances in which valuation is critical:
A. You are looking to raise funding for your company.
B. You are looking to invest in a startup.
C. You are looking to work for a startup and your success is tied to the startup’s success.
D. You are about to get paid in equity.
E. You are interested in selling your business.
This class is focused on startup valuation with entrepreneurial and non-public valuation needs in mind. We cover concepts such as pre-money, post money valuation and valuation equations used for private companies. We will be looking at Startup Valuation from the financial perspective. You can expect to walk away with a few equations and ideas on how to make financial projections.
This class is ideal for entrepreneurs, investors and anyone interested in working for or with a private company. Attendees to this seminar will walk away with a better understanding of the valuation process. Attendees can expect to walk through a financial example of valuation.
“This is one of the best finance classes I have ever taken.”
“I took the “Startup Finance Valuation” class; excellent job. This class is a must for all entrepreneurs. MBA classes do not teach how to value a startup, this class does.”
“After taking this class I have a clear perspective on valuation. I recommend this class to all entrepreneurs. Thank you for a very informative class.”
“I have been in banking for over 20 years and this class taught me valuable concepts not covered by all the classes I have taken throughout my career.”
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|Section 1: Introduction|
Before we beginPreview
|Section 2: History of Venture Capital|
Venture capital is as old as commerce. For the purposes of this class we are more concerned with Venture Capital in the recent history. While reviewing the presentation please pay attention to the fundamental concepts of venture capital described in the video.
Before 1946, Venture Capital was primarily the domain of wealthy families. Private equity as we know it today emerged with the formation of American Research and Development Corporation (ARDC) and J.H. Whitney and Company in 1946.
ARDC was created by Georges Doriot who is also referred to as the “Father of Venture Capital”.
ARDC is of significance to venture capital because of its investment in Digital Equipment Corporation (DEC). This investment laid the foundation of modern day private equity. Following are the fundamental featured of modern day private equity:
1. Private equity firms organize limited partnerships to hold investments in which investment professionals serve as general partners and the investors are passive limited partners.
2. Limited partners pay an annual management fee of 1.0–2.5% and a carried interest typically representing up to 20% of the profits of the partnership
Kleiner, Perkins, Caufield & Byers and Sequoia Capital were the 1st firms to emerge on Sand Hill Rd in 1972. Having a presence on Sand Hill Rd offers the benefit of access to silicon-valley’s semi conductor and computer hardware manufacturers. Both firms have played a pioneering role in the development of the information technology industry as well as the formation of the National Venture Capital Association (NVCA).
The National Venture Capital Association (NVCA) is an excellent resource for learning more about the venture capital industry.
An important development that has shaped the present day venture capital landscape is the Employee Retirement Income Securities Act (ERISA). ERISA is of significance to Venture Capital as in 1974 this act prohibited Corporate Pension Funds from investing in privately held companies. In 1978 the US Labor Department relaxed certain of the ERISA restrictions, thus allowing corporate pension funds to invest in the asset class and providing a major source of capital available to venture capitalists.
|Quiz 1||10 questions|
This is a multiple choice quiz based on the History of Venture Capital section
|Section 3: Fundamental Concept|
Fundamental Concept - The Investment Process:
In Silicon Valley or any Venture Capital deal Globally the number of shares a company starts out with are generally a few million if not 10,000,000 to 100,000,000. The number of shares outstanding and the value of the company should be in balance. If a company is publicly traded then it needs to maintain at least a value of $1/share. If the number of shares outstanding and the value of the company is not in balance then the share price will fall below $1/share. This can result in the stock becoming delisted.
The example in this chapter is based on 10,000 shares for simplicity.
Pre Money Value: This is the value of the business before any investment. It does not include the impact of the expected investment.
Pre Money Shares: This are the number of shares before an investment has been made. These are the shares used to calculate the share price.
Post Money Value: This is the value of the company after an investment has been made. Pre money value + Investment = Post Money Value
Post Money Shares: These are the number of shares outstanding after new shares have been issued. Pre Money Shares + Issued Shares = Post Money Shares
|Quiz 2||5 questions|
This quiz is based on the Investment Process lecture
|Section 4: More about Venture Capital|
The National Venture Capital Association (NVCA) is a valuable resource for learning about the trends in Venture Capital.
A fundamental concept to understand regarding venture capital is the formation of a venture capital fund. A venture capital fund is formed by a Limited Partnership.
A limited partnership requires General Partners and Limited Partners. The venture capital firm serves as general partners and the investors serve as limited partners.
The general partners are not obligated to invest in the venture capital fund. The limited partners make the investments that are managed by the general partners.
General partners are responsible for the day to day activity of the venture capital fund. General partners receive a management fee and may also receive a bonus based on the performance of the fund. There is no defined path for becoming a general partner in a venture capital firm. General partners come from all different backgrounds. General partners establish the strategy for the fund’s investment decisions which are communicated to the limited partners. However, a limited partner’s decision to invest in the fund is limited to the marketing material presented by the fund. Beyond the marketing material, the limited partner has no say in the daily activity of the fund.
Limited partners are the investors in a venture capital fund. Limited partners do not make the investment decisions for the fund. Limited partners may be: Public Pension Funds, Corporate Pension Funds, Insurance Companies, Hight net-Worth individuals
Family Offices, Endowments, Foundations, Fund-Of-Funds and Sovereign Wealth Funds.
Corporate investment activity: A corporation may invest in venture capital by starting its own venture capital firm or by investing in a venture capital fund.
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Where does Venture Capital come from
|Section 5: More Fundamental Concepts|
The simplest way to remember the difference between nominal and real is to remember that real is adjusted.
A fundamental concept to understand is the difference between investing and buying. Investing requires the issuance of new shares and buying requires the transference of ownership.
A miss conception may lie around the around the concept of dilution of ownership. Dilution of ownership is the difference in percentage (%) ownership and results differently depending on “investing” or “buying”
In the case of investing, the dilution of ownership takes place because new shares are issued and existing shares form a smaller percentage of the new total outstanding shares.
In case of buying, an investor sells shares they currently own in a company thus reducing the total number of shares they own. This results in a reduced percentage ownership in the company. If the shares are sold by an investor, the funds from the sale do not belong to the company; they belong to the investor making the sale.
It is important to note that the only way to accommodate an investment is by issuing new shares.
More Fundamental Concepts Part I
More Fundamental Concepts Part 2
|Section 6: Where to begin|
The process of valuation begins with the creation of a cash-flow statement. The sales forecast in the cash-flow statement represents the sales strategy. Here we review a cash-flow statement and utilize this cash-flow statement for the calculation of the NPV.
In excel it is better to calculate the PV of each cash-flow separately. Excel offers an NPV formula as well, however this formula discounts the 1st year as well, which is not the case in calculating the NPV. The 1st year is the current year and there is no difference between nominal and real.
A good solution is to make a rough draft of a model first and then refine it over time. Once you start executing on your business strategy you will start discovering solutions that work. Thus the idea is to start making a simple model that reflects your current understanding of your business. It is important to note that there is no cooky cutter solution to making a business model. A business model reflects a business’s strategic competitive advantage. There is no universal equation for a strategic competitive advantage.
Every business has to have its own strategic competitive advantage. For a very early stage entrepreneur this can be a discovery process.
As an entrepreneur the only individual who can answer the question of how this business is going to make money is the visionary behind the business. In summary the business model is intended to reflect the business’s unique vision.
Where to begin
|Section 7: Real World Example|
Startup to IPOPreview
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Startup Saturdays is empowering the global community through offerings that instill and enhance leadership, entrepreneurship and technical skills. Individuals empowered through Startup Saturdays are able to explore new business and career opportunities that lead to a better quality of life and higher earnings.
Explore new pathways for your life by attending one of our classes. We are here to assist individuals with personal growth and help eliminate unsightly hurdles that may be arising from a lack of knowledge.
The skills taught by Startup Saturdays are in Global demand; your goal might be to start a company or to attain better paying employment. Startup Saturdays has offerings that will help you with these goals. Our trainings are practical, exercise based and come from experienced instructors. Classes take place in a professional conference room setting with individual attention.
The premise of our existence is that we would like to share knowledge with you and encourage you to achieve greatness in your careers and business along with all other aspects of your life.
Leadership and Management Training: The cornerstone of any action is leadership and management. It is the leader within us that drives us to achieve all our goals ranging from getting up in the morning to becoming what ever we desire to become in life.
Startup Saturdays has a series of offerings that help harness this inner leader and polish management skills. Operating in any environment (public or private) is hinged on a set of very necessary skills that need constant maintenance. If nurtured properly these skills can bear sweet fruit and if left unattended these skills can lead to the demise of any individual. These skills make the difference between winning and losing in life.
Technology: A student who has taken a technology class at Startup Saturdays will have a better understanding of technology. This may lead into the student building a new technology product or attaining a new position that requires technical skills the student did not have before. Anyone who has had to deal with building a technology can attest to this challenge. We are here to help you take the right steps. Don’t let the lack of understanding of technology be your handicap.
Having a good grasp of technology can result in more earning and increased employment opportunities.
Finance: The fuel that powers the economy determines how individuals and businesses survive. An integral part of business and life that can’t be ignored and a driving force behind the circumstances of most people and businesses in the World; the classes on Finance offered by Startup Saturdays are eye opening and targeted towards building a smarter financial brain.
Marketing: The greatest challenge for any business is marketing. An individual who can alleviate marketing pains is very valuable to any business. Marketing is an evolving challenge and requires constant attention. The rate with which marketing strategies become obsolete is comparable to the rate with which technologies become obsolete. Ignoring marketing needs can result in the failure of many qualified products and people. A business is incomplete without marketing and will miss out on opportunities along with possibly never reaching scale in its lifetime.
Marketing classes taught through Startup Saturdays focus on practical solutions and strategy building that can be implemented for initial traction or long term growth.
Information Technology Sales: Startup Saturdays offers training that teaches technology sales; a solution valuable to technical entrepreneurs and anyone interested in making money. Technical sales are very different from traditional sales. Technical sales require a good understanding of technology and traditional sales training can’t be used as a substitute to technical sales training.
Startup Saturday’s Technical Sales Training is available to individuals and corporations alike.