Gerard Buckley presented on valuation methods for early stage companies. He discussed that valuation is the agreed upon price for buying or selling a company. For private companies, the pre-money and post-money valuations are important. Buckley then reviewed several valuation methods for pre-commercialization companies, including the venture capital method, scorecard method, risk factor method, and the Shamrock method. He emphasized that valuations are subjective and depend on factors like management, competition, growth potential, and investor expectations.

1. 1
LUNCH AND LEARN:
VALUATION OF
EARLY STAGE COMPANIES
Presented by: Gerard Buckley, Jaguar Capital

2. 2
Who Am I
• Founder and CEO of Jaguar Capital an Advisory
Practice for Growth Stage Companies
• Chairperson of BOD, Maple Leaf Angels
• Entrepreneur in Residence with Incubes
• Member of SME Committee of OSC
• Investment Comm of MSV University, Hfx
• 32 yr. Career with Scotia Capital as a Financial
Risk Management Advisor to Fortune 200
Companies: Rogers, Irving Gr, Empire Co., Four
Seasons, Bruce Power, Ford, CAE etc.

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Valuation - Agreement of Price to Buy & Sell

4. 4
Valuation - Introduction
• The Valuation of a company is the price to buy
the entire company whether it is public or
private. It is usually quoted in the price of a
share; however, for a private company you need
to know the total value usually stated as Pre-
Money Valuation before investment and Post-
Money Valuation or Market Capitalization after
investment.

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FMV – Fair Market Value
``the price , expressed in terms of cash
equivalents, at which property would change
hands between a hypothetical willing and able
buyer and a hypothetical willing and able
seller, acting at arms length in a open and
unrestricted market, when neither is under
compulsion to buy or sell and when both have
reasonable knowledge of the relevant facts.``

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Valuation – Revenue Companies

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Valuation Methods – Revenue Companies
1. Multiple of EBITDA
2. Discounted Cash Flow
3. Comparable transaction method
4. Book Value
5. Total Enterprise Value
6. Market Value
7. Liquidation Value: Forced or Orderly

8. 8
Valuation – Business Valuations
• Every valuation and Pricing is unique
• In a M&A Transaction price or valuation comes
down to the strategic value the acquirer brings to
the transaction & the portion paid to the target
• 65% of business owners don’t know what their
company is worth
• 85% have no exit strategy
• 75% of their worth is tied up in their business

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Valuation – Business Valuations

10. 10
Valuation – Pre - Commercialization

11. 11
Valuation – Pre - Commercialization

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Valuation – Investor Expectations
• Google, the most active M&A buyer paid < 20
mil with <20 people for 90 % of it`s targets.
• An Angel Investor has an expectation of 10X
• Survey conducted among USA angel groups by
Bill Payne in 2012. Average Pre-Money valuation
is 2.96m & Median is 2.75m an increase over`11
• The usual range of valuation for an pre-
commercialized company 1 to 3 mil
• A Convertible Debenture (last weeks lunch and
learn) is a way to take the valuation discussion
off the table

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Valuation – How subjective is it?

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Valuation – Investor Expectations
• At the end of the day valuations are subjective
• Many VC`s will not discuss investment until a
price is set
• A high valuation may create an orphaned
financing or even worse a future down round
• Businesses are sold not bought, a business
should be preparing for an exit from the start
• A company needs to understand the potential
buyers universe (Financial vs. Strategic buyers)
and what they are looking for.

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Valuation – Investor Expectations
• A USA with concerning terms will have negative
pressure on valuation
• Valuation is calculated on a Fully Diluted Basis –
all options, warrants, convertible debentures,
vesting, etc. are converted for the purposes of
presenting the `Capitalization Table` referred to
as `Cap Table`

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Valuation – Investor Expectations
• Valuation is caveat emptor – buyer beware.
More investors have lost more money because
they overpaid for a stock than has been lost due
to fraud. (Warren Buffett and Benjamin Graham
= Value Investing)
• Concentrated sales is negative for valuation
• Bootstrapping and obtaining traction will assist
a company build valuation

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Valuation Methods - Pre- Commercialization
1. Venture Capital Method (ARI)
2. Scorecard Method (David Berkus)
3. Risk Factor Method (ARI)
4. The Shamrock Method (Buckley)

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Valuation Methods – Venture Capital Method

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Valuation Methods – Scorecard Method
30% Management - quality team in place, except sales
25% Opportunity - appears to be a huge opportunity
15% Product – disruptive technology, prototype done
10% Sales – team not in place , channels unclear
10% Competition – many small players, lack technology
10% Other Factors – foreign Market, partners

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• Management
• Stage of the business
• Legislation/Political risk
• Manufacturing risk
• Sales and marketing risk
• Funding/capital raising
risk
• Competition risk
• Technology risk
• Litigation risk
• International risk
• Reputation risk
• Potential lucrative exit
Valuation Methods – Risk Factor Method

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Valuation Methods – Shamrock Method
• Credit for Actual Invested Capital (no sweat equity)
• Up to 250K for Management Team
• Up to 250K for Proof of Concept or Product Validation
• Up to 250K for Disruptiveness of Technology & Patents
• Up to 250K for Business Model, pricing, etc.
• Up to 250K for other including advisors, governance,
financials, company infrastructure, etc.
• Up to 250k for go to market strategy, traction, growth…
• Credit for 2 years of revenue run rate up to 3 years

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Contact Information
Gerard Buckley, BBA, FICB, ICD.D
President and CEO
Jaguar Capital Inc.
(C) 416-884-9522
(W) 416-646-6789
g.buckley@jaguarcapital.ca
www.jaguarcapital.ca
Twitter: @jaguarcapital
Twitter: @gerardbuckley