New Venture Financials and Business Valuation One Asset Management Limited

New Venture Financials and Business Valuation To share knowledge and experience of the venture capital industry in term of new venture capital financials and business valuation by venture capitalists’ point of view in order to give fundamental knowledge for further study or practical use in the real business operation. Objective

Research Grant Business Expansion Market Expansion Product Launch Product Development Idea Conception Angel Venture Cap Venture Capital IPO Business Cycle and Financing Need Debt Financing

Sources of Funds for Enterprises Debt Financing 1. Short-Term Loan : Working Capital - O/D, P/N, Cheque Discount - Packing Credit - Factoring 2. Long-Term Loan : Fix Asset - Loan (Repayment term of 3-10 years) - Lease Financing (3-5 years) New Venture Financials and Business Valuation

Sources of Funds for Enterprises 3. Debenture : Working Capital / Fix Asset - Secured Debenture - Unsecured Debenture - Convertible Debenture Equity Financing 1. Preferred Stock 2. Common Stock New Venture Financials and Business Valuation

Institutions Supplying for financing Debt Financing 1. Government’s Special Purpose Bank 1.1 The Government Saving Bank 1.2 Small and Medium Enterprises Development Bank of Thailand (SMEs Bank) 1.3 Bank for Agriculture and Agricultural Cooperatives 2. Commercial Bank New Venture Financials and Business Valuation

Institutions Supplying for financing 3. Other Financial Institutions 3.1 Finance Company 3.2 Leasing Company 3.3 Factoring Company New Venture Financials and Business Valuation

Institutions Supplying for financing Equity Financing 1. Government’s Venture Capital Fund 1.1 SMEs Venture Capital Fund : ONE ASSET MANAGEMENT LIMITED 1.2 The Office of Small and Medium Enterprises Promotion 1.3 National Innovation Agency 2. Venture Capital Company 2.1 Venture Capital Management SecuritiesCo. 2.2 General Venture Capital Company New Venture Financials and Business Valuation

Financial Aspect of Business Plan Financial Plan should provide the following information for investors/ lenders: Sources of Funds Uses of Funds Projected financial position of the firm (Income Statement, Balance Sheet, Cash flow statement) The Plan should also include how the funds/loans can be repaid The Plan should be at least 3-5 years New Venture Financials and Business Valuation

Venture Capital as a New Source of Fund Venture Capital is one of the equity financing sources of funds in order to invest in good potential businesses. Venture Capital will invest in enterprises in term of preferred stock or common stock as a partner of the enterprises and hold the investment for a specific period of time. New Venture Financials and Business Valuation

What VC are looking for? Historical financial data Good and undated financial statements Management team Profile Income Statement: Revenue recognition (whether there are conditions on sales) R & D Costing : accural rather than cash Often forgotten costs : financing cost New Venture Financials and Business Valuation

What VC are looking for? (Cont’d) Cash Flow Collection Period Monthly Cash Flow for the first year Yearly Cash Flow thereafter New Venture Financials and Business Valuation

How Does Venture Capital Determine Business Value ? Qualitative Business Valuation Analysis of Management Reviewing Personnel and Compensation Analysis of Marketing and Sales - Market Segment - Market Trend - Market Share Investigating Product SWOT Analysis New Venture Financials and Business Valuation

How Does Venture Capital Determine Business Value ? SWOT ANALYSIS S trengths W eaknesses O pportunities T hreats New Venture Financials and Business Valuation

Quantitative Business Valuation Analysis of The Financial Statements and Projections - Profit and Loss Statement - Balance Sheet Statement - Cash Flow Statement - Source and Use of Fund - Ratio Analysis New Venture Financials and Business Valuation How Does Venture Capital Determine Business Value ?

Methods of Quantitative Business Valuation - Book Value - P/E Ratio - Discount Cash Flow - Price to Book Value New Venture Financials and Business Valuation How Does Venture Capital Determine Business Value ?

Financing Issues for Software Business High investment in human capital in initial stage Debt financing difficult due to lack of collateral Difficulty in valuation of IP for venture capital financing Understanding of the business by venture capitalist New Venture Financials and Business Valuation

Preparation for Getting Financing Common problems faced: Efficiency in operation Business knowledge Weak financial background Financial Statement not addressed properly Underestimation of support costs Lack of legal expertise, especially contract laws High valuation commanded New Venture Financials and Business Valuation

Preparation for Getting Financing No risk assessment (unfinished contract, cost overrun, copyright protection, etc.) Overestimation of revenues Accounting issues, especially cost allocation Human resource issues not addressed properly Overseas opportunity to go beyond domestic valuation New Venture Financials and Business Valuation