Venture Capitalists: Trendsetter Inc. TEACHING ENTREPRENEURIAL THOUGHT & ACTION 20 March 2012 Richard T. Bliss‚ PhD Trendsetter Inc. Learning Objectives 1. The entrepreneur/VC relationship 2. Exposure to deal term sheets 3. Moving beyond valuation 4. VC negotiations 2 The Entrepreneur/VC Relationship Entrepreneur VC 3 The Entrepreneur/VC Relationship • Provisions to address adverse selection − due diligence − staging/milestones − use of convertible preferred shares • Provisions
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frequently applied in company’s valuation and investment project valuation each investment is evaluated of future decisions over its useful life based on the expected cash flows. The result is net present value (NPV) and a positive NPV show that investment creates value. It is a notion that EVA approach requires less information than a DCF valuation‚ or that it provides a better estimate of value is false. The EVA approach should yield the same value as a DCF valuation (DAMODARAN)‚ and it requires
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this aspect and as a result don’t even get into the consideration of professional angels or VCs‚ specifically when it involves projecting financials and valuations 3. Seek an outside and ‘professional perspective’. Financials and company valuations are complicated factors with critical ramifications. Take too much money now at a low valuation and you sacrifice a significant percentage of equity ownership of your company. And if you take too little‚ you risk running out of money. Apropos‚ it is
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Ratio Analysis Perform traditional comparative and trend analysis as well as multivariate financial statement analysis for 1980 to 1990. Can you analyze the performance of Wheeling Pittsburgh in a manner that reveals if WHX was heading towards distress before 1985? The table below shows calculated financial ratios for the period 1980-1990. Calculation details include: * ROE was calculated using Reported Net Income prior to preferred dividends and Total Common Equity without including
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tradeoffs in using Multiples versus DCF analysis? DCF Valuation 1. Forecast revenue for each year for from the firm’s financial data. 2. Select appropriate discount rate based on WACC 3. Discount each cashflow back to it present value 4. Obtain the terminal value through an application of terminal value multiple 5. You add these values together 6. Using this method‚ Martin calculates the price of Cox’s share to be $54.29 Multiple Valuation: 1. Identify comparable firms that have growth‚ cashflow
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about what assets or products to invest in‚ how to manage cash and how to raise funds for growth. Topics include the role of corporate finance‚ cash flow and financial statement‚ time value of money‚ discounted cash flow valuation‚ interest rate and bond valuation‚ stock valuation‚ net present value‚ and making capital investment decisions. Text Book Stephen A. Ross‚ Randolph W. Westerfield‚ and Bradford D. Jordan‚ Fundamentals of Corporate Finance‚ Seventh edition‚ Irwin McGraw-Hill‚ 2006
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Q-1 What valuation(s) can we place on the business? What method(s) did you use to arrive at the valuation(s)? Valuation Based on Discounted cash Flow Discounted Cash Flow Paint Pen Value using this model is $8.17M. The WACC used for discounting cash flows was 16%. We had made the following assumptions about revenues projections which were based on our growth strategy: 15% growth rate in FY-1997R 17% growth rate in FY-1998E 20% growth rate in FY-1999E 25% growth rate in FY-2000E
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Courteau et al (2000) analyse whether different valuation models are same when a terminal value calculation based on price is used. They conclude that RI is dominant to CF when terminal price forecasts are not obtainable. Penman and Sougiannis (1998) examine the differences in model estimates by using a portfolio of ex post realizations of financial statement data. They conclude that methods based on projecting GAAP accrual earnings give lower valuation errors than forecasting cash flows. The inconsistent
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Bidding on the Yell Group 1. Introduction Yell Group consists of two businesses that are operating across countries. Yellow Page is a classified directory business in the UK‚ while Yellow Book is an independent directory business in the USA. These businesses are currently owned by British Telecom which is under pressure to reduce its heavy debt load and had been wavering for months about the future of these two Yellow Pages divisions. Apax Partner and Hick Muse are two private equity firms
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List of Theory Topics = PAPER F9 CAPITAL INVESTMENT APPRAISAL 1) Why Companies spends money on Capital Investment? 2) Stages in Capital Investment Process 3) For Capital investment appraisals why cash flows are more appropriate than Accounting profits 4) Meaning of Relevant Cash flows and examples of Relevant Cash flows 5) Why Time Value of Money is Key Concept in investment Appraisal? 6) Assumptions of discounted cash flows 7) How inflation may complicate analysis of Decisions Difference
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