HOW TO COME UP WITH YOUR COMPANY’S VALUATION?

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WHY SHOULD YOU VALUE COMPANY

•  To get external investment

•  To know whether this company is worth spending

time on or not (Is this a lifestyle business or a

Scalable Start Up)

CHECKLIST TO COME UP WITH YOUR VALUATION

•  Business Model (Commission, Ads, Listing Fee etc)

•  Sales Projection (Unit sold, Market Size, etc)

•  Setup Cost (Tech Cost, Factory Setup, etc)

•  Operating Cost (Salary, Rent, COGS, etc)

•  Sales / Marketing Cost (Advertisements, Commissions, etc)

DIFFERENT METHODS TO VALUE YOUR COMPANY

•  Market & Transaction Based Comparable

•  User Base Comparable (Tech industry)

•  Revenue Comparable

•  Asset Based Valuation

•  Discounted Cash Flow (DCF)

LET’S LOOK AT $19BN WHATSAPP ACQUISITION

•  Revenue = $20mn / year (normal company would require Whatsapp

to have about $1.5bn after-tax income to get $19bn valuation)

•  Active User Base = $450mn

•  At that point, Facebook was trading at $145/user, Twitter

was trading at $128/user

•  Facebook paid Whatsapp at $42/user

VALUATION TERMS WHEN TALKING TO AN INVESTOR

•  Pre-money Valuation vs Post-money Valuation •  Pre = Valuation minus Investment •  Post = Valuation including Investment

•  Break-even Point •  How many months will you need to get to cash flow positive

•  Payback Period •  How many months will you need to recover the investment

•  Average Burn Rate •  How much money are you spending per month on Operating Cost

FACTORS THAT AFFECT VALUATION (LATE STAGE)

•  Good Will •  IPs (eg. Google bought Motorola for $12bn & sold for $3bn) •  Brand Value •  Team (Acqui-Hire)

•  Synergy •  Buy to monopolize the market (eg. Expedia) •  Replacement cost for another company •  Eg. OpenTable & Priceline

•  User base value to another industry •  Eg. Whatsapp, SnapChat

LET’S GO TO THE FINANCIAL MODEL

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