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Business Plan Preparation

Business Plan Preparation. Frank Moyes Leeds School of Business University of Colorado Boulder, Colorado. Seed 80%+ Start-Up 60% Early Stage 50% Second Stage 40% Third Stage 30% Bridge 25%. 19x 10x 8x 5x 4x 3x. 0. Required Return on Investment.

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Business Plan Preparation

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  1. Business Plan Preparation Frank MoyesLeeds School of BusinessUniversity of ColoradoBoulder, Colorado Venture Capital Method of Valuation

  2. Seed 80%+ Start-Up 60% Early Stage 50% Second Stage 40% Third Stage 30% Bridge 25% 19x 10x 8x 5x 4x 3x 0 Required Return on Investment 5 yr. Increase IRR Bygraves & Zacharakis Venture Capital Method of Valuation

  3. Venture Capital Method Key Assumptions • Net Profit • Valuation Multiple • Price/Earnings • Price/Revenue • Price/EBITDA • Price/Seller’s Discretionary Earnings • Investor IRR Venture Capital Method of Valuation

  4. Venture Capital MethodMountain Unicycles Investment $1 million Exit year 5th year Revenue $20 million Net profit (10%) $2 million Venture Capital Method of Valuation

  5. Venture Capital MethodMountain Unicycles Investment $1 million Exit year 5th year Revenue $20 million Net profit (10%) $2 million Growth Rate 20% P/E multiple 15x Company value ? Venture Capital Method of Valuation

  6. Venture Capital MethodMountain Unicycles Investment $1 million Exit year 5th year Revenue $20 million Net profit (10%) $2 million Growth Rate 20% P/E multiple 15x Company value $30 million Venture Capital Method of Valuation

  7. Venture Capital MethodMountain Unicycles Investment $1 million Exit year 5th year Revenue $20 million Net profit (10%) $2 million Growth Rate 20% P/E multiple 15x Equity value $30 million Required IRR ? Required Increase Required $ value Venture Capital Method of Valuation

  8. Venture Capital MethodMountain Unicycles Investment $1 million Exit year 5th year Revenue $20 million Net profit (10%) $2 million Growth Rate 20% P/E multiple 15x Company value $30 million Required IRR 60% Required Increase ? Required $ value Venture Capital Method of Valuation

  9. Venture Capital MethodMountain Unicycles Investment $1 million Exit year 5th year Revenue $20 million Net profit (10%) $2 million Growth Rate 20% P/E multiple 15x Company value $30 million Required IRR 60% Required Increase 10x Required $ value ? Venture Capital Method of Valuation

  10. Venture Capital MethodMountain Unicycles Investment $1 million Exit year 5th year Revenue $20 million Net profit (10%) $2 million Growth Rate 20% P/E multiple 15x Company value $30 million Required IRR 60% Required Increase 10x Required $ value $10 million % of company required ? Venture Capital Method of Valuation

  11. Venture Capital MethodMountain Unicycles Investment $1 million Exit year 5th year Revenue $20 million Net profit (10%) $2 million Growth Rate 20% P/E multiple 15x Company value $30 million Required IRR 60% Required Increase 10x Required $ value $10 million % of company required 33% Pre-money valuation ? Post-money valuation ? Venture Capital Method of Valuation

  12. Venture Capital MethodMountain Unicycles Investment $1 million Exit year 5th year Revenue $20 million Net profit (10%) $2 million Growth Rate 20% P/E multiple 15x Company value $30 million Required IRR 60% Required Increase 10x Required $ value $10 million % of company required 33% Pre-money valuation $2 million Post-money valuation $3 million Venture Capital Method of Valuation

  13. Venture Capital MethodMountain Unicycles Investment $1 million $1 million Exit year 5th year 5th year Revenue $20 million $20 million Net profit (10%) $2 million $ 2 million Growth Rate 20% 30% P/E multiple 15x ? Company value $30 million ? Required IRR 60% ? Required Increase 10x ? Required $ value $10 million ? % of company required 33% ? Pre-money valuation $2 million ? Post-money valuation $3 million ? Venture Capital Method of Valuation

  14. Venture Capital MethodMountain Unicycles Investment $1 million $1 million Exit year 5th year 5th year Revenue $20 million $20 million Net profit (10%) $2 million $ 2 million Growth Rate 20% 30% P/E multiple 15x 20x Company value $30 million ? Required IRR 60% ? Required Increase 10x ? Required $ value $10 million % of company required 33% Pre-money valuation $2 million Post-money valuation $3 million Venture Capital Method of Valuation

  15. Venture Capital MethodMountain Unicycles Investment $1 million $1 million Exit year 5th year 5th year Revenue $20 million $20 million Net profit (10%) $2 million $ 2 million Growth Rate 20% 30% P/E multiple 15x 20x Company value $30 million $40 million Required IRR 60% ? Required Increase 10x ? Required $ value $10 million ? % of company required 33% ? Pre-money valuation $2 million Post-money valuation $3 million Venture Capital Method of Valuation

  16. Venture Capital MethodMountain Unicycles Investment $1 million $1 million Exit year 5th year 5th year Revenue $20 million $20 million Net profit (10%) $2 million $ 2 million Growth Rate 20% 30% P/E multiple 15x 20x Company value $30 million $40 million Required IRR 60% 60% Required Increase 10x 10x Required $ value $10 million $10 million % of company required 33% 25% Pre-money valuation $2 million ? Post-money valuation $3 million ? Venture Capital Method of Valuation

  17. Venture Capital MethodMountain Unicycles Investment $1 million $1 million Exit year 5th year 5th year Revenue $20 million $20 million Net profit (10%) $2 million $ 2 million Growth Rate 20% 30% P/E multiple 15x 20x Company value $30 million $40 million Required IRR 60% 60% Required Increase 10x 10x Required $ value $10 million $10 million % of company required 33% 25% Pre-money valuation $2 million $3 million Post-money valuation $3 million $4 million Venture Capital Method of Valuation

  18. Venture Capital MethodMountain Unicycles Investment $1 million $1 million Exit year 5th year 5th year Revenue $20 million $20 million Net profit (10%) $2 million $1 million Growth Rate 20% 10% P/E multiple 15x ? Company value $30 million Required IRR 60% Required Increase 10x Required $ value $10 million % of company required 33% Pre-money valuation $2 million Post-money valuation $3 million Venture Capital Method of Valuation

  19. Venture Capital MethodMountain Unicycles Investment $1 million $1 million Exit year 5th year 5th year Revenue $20 million $20 million Net profit (10%) $2 million $1 million Growth Rate 20% 10% P/E multiple 15x 10x Company value $30 million ? Required IRR 60% Required Increase 10x Required $ value $10 million % of company required 33% Pre-money valuation $2 million Post-money valuation $3 million Venture Capital Method of Valuation

  20. Venture Capital MethodMountain Unicycles Investment $1 million $1 million Exit year 5th year 5th year Revenue $20 million $20 million Net profit (10%) $2 million $1 million Growth Rate 20% 10% P/E multiple 15x 10x Company value $30 million $10 million Required IRR 60% ? Required Increase 10x ? Required $ value $10 million ? % of company required 33% Pre-money valuation $2 million Post-money valuation $3 million Venture Capital Method of Valuation

  21. Venture Capital MethodMountain Unicycles Investment $1 million $1 million Exit year 5th year 5th year Revenue $20 million $20 million Net profit (10%) $2 million $1 million Growth Rate 20% 10% P/E multiple 15x 10x Company value $30 million $10 million Required IRR 60% 60% Required Increase 10x 10x Required $ value $10 million $10 million % of company required 33% ? Pre-money valuation $2 million ? Post-money valuation $3 million ? Venture Capital Method of Valuation

  22. Venture Capital MethodMountain Unicycles Investment $1 million $1 million Exit year 5th year 5th year Revenue $20 million $20 million Net profit (10%) $2 million $1 million Growth Rate 20% 10% P/E multiple 15x 10x Company value $30 million $10 million Required IRR 60% 60% Required Increase 10x 10x Required $ value $10 million $10 million % of company required 33% 100% Pre-money valuation $2 million ?! Post-money valuation $3 million ?! Venture Capital Method of Valuation

  23. Venture Capital Method Key Assumptions • Net Profit • P/E Multiple • Investor IRR Venture Capital Method of Valuation

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