Horizon A and B
Assignment 1: Horizon (A)/(B)
FIE436 – Venture Capital, Private Equity and IPO`s
Gard Elias Kolbeinsen, s144649
Asgeir Sundnes, s144620
Bjørnar Mundal, s115961
Fredrik Waaler, s116025
Petter Kongslie, s144708
Valuation
In order to value Horizon we used three different valuation methods, yielding three comparable values for the company. Firstly we valued Horizon´s enterprise value to $177 million through a standard DCF method, where we assumed a future steady debt level. Due to high uncertainty in Horizon´s capital structure we also valued it to $186 million through an adjusted present value approach. As expected the venture capital valuation method yielded a more conservative value of $86 million. Following is our analysis and discussion regarding the different valuation approaches. It should be noted that our estimated values are highly sensitive to our input parameters and therefore yielding uncertain values, as shown by our sensitivities analysis´s in appendix 1,2 and 4.
Standard DCF
In order to calculate the value for Horizon using the DCF method (see exhibit 1) we first have to find the FCF. This can be problematic for a start-up company due to the uncertainty associated with the FCF estimations. Usually one would use historical data in order to predict future FCF´s, however this is information we cannot find in a start-up company. In other words, when we estimate the future FCF we have to make some assumptions that might be vague or far-stretched.
Horizon’s goal is to expand into nine markets. It is estimated that getting one city office fully operating will take 6-9 months. Horizon projects a market share of 3 % in Chicago (their first operating office) within 5 years.
It would be natural to assume that for each city Horizon expand to they will get more efficient and reach in their expanding, reaching their market goals faster. We therefore think that Horizon will be fully operational and reach their market share in all of the cities within
FIE436 – Venture Capital, Private Equity and IPO`s
Gard Elias Kolbeinsen, s144649
Asgeir Sundnes, s144620
Bjørnar Mundal, s115961
Fredrik Waaler, s116025
Petter Kongslie, s144708
Valuation
In order to value Horizon we used three different valuation methods, yielding three comparable values for the company. Firstly we valued Horizon´s enterprise value to $177 million through a standard DCF method, where we assumed a future steady debt level. Due to high uncertainty in Horizon´s capital structure we also valued it to $186 million through an adjusted present value approach. As expected the venture capital valuation method yielded a more conservative value of $86 million. Following is our analysis and discussion regarding the different valuation approaches. It should be noted that our estimated values are highly sensitive to our input parameters and therefore yielding uncertain values, as shown by our sensitivities analysis´s in appendix 1,2 and 4.
Standard DCF
In order to calculate the value for Horizon using the DCF method (see exhibit 1) we first have to find the FCF. This can be problematic for a start-up company due to the uncertainty associated with the FCF estimations. Usually one would use historical data in order to predict future FCF´s, however this is information we cannot find in a start-up company. In other words, when we estimate the future FCF we have to make some assumptions that might be vague or far-stretched.
Horizon’s goal is to expand into nine markets. It is estimated that getting one city office fully operating will take 6-9 months. Horizon projects a market share of 3 % in Chicago (their first operating office) within 5 years.
It would be natural to assume that for each city Horizon expand to they will get more efficient and reach in their expanding, reaching their market goals faster. We therefore think that Horizon will be fully operational and reach their market share in all of the cities within