presentation 7 - entrepreneurship goethe

Entrepreneurship

WPMM: EPSH

Winter 2015

Sebastian Schäfer [email protected]

Thomas Funke [email protected]

Entrepreneurship - WiSe 2015/2016 2

finanzielle Anreize, Zusatzleistungen

Unternehmenskultur / Betriebsklima

Arbeitsinhalte

Work-Life-Balance / Vereinbarkeit von

Privatleben und Beruf

Karriereaussichten

Arbeitsbedingungen

Führungskultur

A couple of facts

• 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


What are Unicorns?


What is Valuation?


What are Unicorns?


Trend #1: Costs to launch an Internet Startup


1. Traditional VC model was designed for massive, capital intensive R&D with potential enourmous returns.

2. Lean Startups require significantly less capital, but much more speed and market access

3. Traditional VC‘s are not aligned for such markets (too much capital, too little know-how & entrepreneurship)

Trend#1: Traditional VCs under pressure


Trend #1: The German startup ecosystem: VC

and BA


Trend#2: Sources of early-stage capital

• Bootstrapping Founder‘s capital and credit cards, bank lines of credit, loans (SBA)

• Equity Financing (Early) Friends and family, crowdfunding, individual angels, organized angel

groups, early stage venture capitalists

• Equity Financing (Early or Later) • Venture capitalists, corporate venture funds, private equity firms, hedge

funds, and ultimately the public markets


New Sources of Capital


Trend#2: The New Startup Landscape

Startup

Factories

Accelerators

Super Angels

Professional Support

Benchmarking & Competition

Structures & Processes

Rapid Prototyping

„Industrialisation of the startup szene“


Public Initiatives: State Funds, Incubators, Public Loans, e-Government


Trend#2: The German startup ecosystem:

Public VC money


Trend#3: New York City Tech Map

http://www.nyctechmap.com/vcs/


Trend#3: The German startup ecosystem


Investment Rounds


Investment Round: Pre-Seed

FFF, Angels, pre-seed

Purpose: Hypothesis testing

Amount: Typically the range is 0$ - 250k$


Investment Round: Seed

Seed

Purpose: Figuring out the product and getting user/product fit

Amount: Typically the range is 250k $ - 2Mio $


Investment Round: Series A

Series A

Purpose: Scaling the product and getting to a business

model

Amount: Used to be 2Mio$ - 15Mio $ with a median of

3$Mio – 7$Mio. Has gone dramatically up to 7$-15$


Investment Round: Series B

Series B

Purpose: Typically all about scaling.

Amount: Anywhere from 7$ - tens of million


Investment Round: Series C

Series C

Purpose: Accelerate what the company is doing. Costly

acquisitions.

Amount: Can range from tens to hundret of millions.


Phases of financing


Valuation


What is Valuation?

• Valuation mix of art (black) & science

• In start-up/early-stage, valuation exercise more art than science,

with heavy dose of negotiation thrown in by the investment source

(VC‘s, angels, etc.)

• Valuation may be used for both negotiated „price“ for investment

purposes, Founder/Partner buy-out scenarios (more common

thatn you think), marital dissolutions, and third-party acquisitions


Some terms: Value vs. Price


Occations to Valuation


Venture Specifics

• Short history

• Lack of resources

• Great importance of intangibles

• High flexibility

• High risk but at the same time high chance


Venture Specifics

• Short history

• Lack of resources

• Great importance of intangibles

• High flexibility

• High risk but at the same time high

chance


Valuation Methods


Approaches of Valuation: DCF

Model street fair factory v1.4 Final 2012-09-03.xlsm


Net Present Value

Calculating the NPV:

= 5 year forecast of profit* / discount rate**

*profit = turnover – costs

**Discount Rate = what is the risk, that my forecast is wrong


What is Valuation?


Validating the validation


Cost Validation

Cost Validation (depending on the type of start-up):

- Do salaries scale in correspondance to the growth of the company? What was the growth rate of the past three years?

- Are the salaries above, below or at market rates? Are salaries subsidized?

- What are other cost drivers? Are all costs under control of the company? (Example: supplier prices)?


Profit Validation

Profit Validation (depending on the type of the start-up):

- Are enough deals in the pipeline? What was the closure rate in the past?

- Is sales internal or external? Is the sales team big enough? How is it compared to the historical data?

- Price-sensitiveness of customers? CAC?

- ….


B2C Startups

Traction??

Vanity Metrics vs. real Key Metrics

eCommerce: CAC vs. LCV

Scalable Marketing Chanels? (zb. SEO vs. SEM)

Funding Requirement?


B2B Startups

Scalable Sales-Model?

Technology / USP

Team complete?

Network / Customer Access

Competition / Margins


What is Valuation?

• Valuation Based on Measuring…

Sales (Multiple of revenue – P/R)

Net Income (P/E)

Cash Flow (EBITDA or Free Cash Flow)

Discounted Cash Flow (DCF)

Discounted Future Earnings

Net Worth or Book Value

Real Options, Black Scholes, etc.

Do they apply to startups?


Dave Berkus Method


Scorecard Method


Scorecard Method

Topic Questions to answer Common fallacies Supporting mat‘s

Problem What’s the need you address?

How big, significant, urgent?

Mission-critical or nice-to-have?

Insignificant problem

Engineering driven (solution

seeking problem)

Market research

Customer interviews

Solution How do you address this need?

Why is this better/cheaper/unique?

What value for the user/client?

Commercially relevant factors

neglected

Driven by feasibility, not need

Prototype

-

Too much focus on technology

Just because something works

does not mean anyone needs it

Data / prototype

Patent list

Full patent texts

Why is it unique / different?

How can you defend it?

Does it work? Have you proof?

Technology

Scalability

Route to market and its cost not

considered

How will you capture value?

How do you monetize this value?

Is this concept scaleable?

Business

Model

Not enough focus on it

Not well enough thought through

Not enough resources (€, HR…)

devoted to execution

Anything of relevance

The more specific (i.e.

closer to reality, action

oriented), the better

How will you sell it?

What resources will you need?

What drives buying decisions?

Marketing

& Sales

Source: GCP


Scorecard Method

Topic Questions to answer Common fallacies Supporting mat‘s

Competition Who else is in the game?

Substitutes? Industry food chain?

What’s your unfair advantage/USP?

“Nobody offers this (yet)”

Unknown competitors

“Our widget can….”

-

Team Who will implement the plan?

Can they do it? track record?

Advisors? Recruitment needs?

All R&D, no sales / commercial

No assessment of future needs

Full CVs

Reference list

Not action-oriented

-

Where are you now?

What next?

Status &

Timeline

Unrealistic/intransparent

assumptions (both ways)

No clearly identified milestones

No linking of risk & return

Unrealistic funding requirement

(both ways – too lo/hi)

Financial Plan, esp.

monthly Cash-Flows

Milestone Plan

Funding requirement

& use of proceeds

What do you plan to achieve when?

What are your assumptions?

How do you measure progress?

What resources do you need?

What will you use them for?

Projections,

Milestones

Source: GCP

Introduction rather than summary

Written first, rather than last

Too long

- Give a complete and concise

overview of the opportunity on

no more than two pages

ExecSum


Wisdom of the Crowd


Scorecard Method


Exemplary Questions

1. Imagine you had to value your Fin-Tech startup. You already have some cash-

flow. Which valuation method would you use and why?

2. A friend has a startup idea (no prototype, no market proof yet, just the idea) and

has a meeting with an investor. He wants to know how he can determine the

value of his idea and he wants you to give him arguments for an absurdly high

valuation. What can you advise him?

presentation 7 - entrepreneurship goethe

Documents

ba entrepreneurship

entrepreneurship wpmm

public loans

sources of early

capital intensive rd

public initiatives

traditional vcs

corporate venture funds