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Published byCharles Casey Modified over 8 years ago
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Venture Capital and the Finance of Innovation [Course number] Professor [Name ] [School Name] Chapter 17 Implied Valuation
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Implied post-valuation, Series A When Series A LP Valuation = Series A LP Cost, then the value of the whole pie = breakeven valuation = implied valuation = IV post
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Implied pre-valuation, Series B IV pre = IV post – Series B GP implied valuation – Series B LP implied valuation = IV post – (1 / (1 – GP%) )* Series B LP cost
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Walnut, revisited Considering a $2M Series A investment in RBS for RP (1.8M APP) and CP (converts to 55,556 shares), with 8% accrued cash dividends. Fully-diluted share count = 200K Prior “round” of investment was $400K for 10% of the common stock. Problem What is IV pre ? How does it compare to O’Connor’s (CEO) expectations?
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Example Talltree invests $10M in Series B for 8M shares of CP. Other investors are EBV (Series A), with 6M shares of CP ($6M APP) and employees (with 10M shares of common). Problems What is IV post and IV pre ? What the LP implied valuation of the Series A?
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Down rounds? What is the proper way to assess a down round? Usually, the contract is explicit, and we can just compare the conversion prices across rounds. What if the new round does not have a conversion price? Or, what if we really want to get it “right”?
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Example Same Setup as previous example. One year later, and Owl invests $12M for RP ($2M APP with 5X liquidation preference) and 8M shares of common. Problems What is IV post and IV pre ? What the LP implied valuation of the Series B? Do you think this really represents a down round for the Series B?
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Metapath Series A: Securicor Telesciences, Jan 95: 600K RP with cash dividend (LIBOR + 1%) Series B: Bessemer Venture Partners (BVP), Jan 95: 1M RP with cash dividend (8% simple starting Jan 2000) Series C: BVP, Sept 1995, 1M CP ($1.05 OPP, 950K shares), same div as Series B Series D: BVP, USVP, Norwest, April 96: 7M CP ($1.62 OPP, 4.32M shares), same div as Series B 12.66M total shares prior to Series E Series E: Omega, TCV, and others: Structure 1: 11.75M PCP at OPP of $6 (1.96M shares) (assume QPO at $15 per share) Structure 2: 11.75M CP at OPP of $5.50 (2.14M shares) Assume total valuation = $115M + $11.75M = $126.75M as base case
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Series E vs. Merger? Cell Tech (not real name) offering $115M in stock. How should BVP and Metapath compare this offer to the Series E?
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