Valua%on of University Startups Panel Discussion with: • Moderator: Bob Hisrich, PhD, Kent State University • Helena Wisniewski, PhD, University of Alaska, Anchorage • Gary Gibbons, PhD Thunderbird School of Global Management • Steve Roberts, Kent State University Director, Technology CommercializaHon April 18, 2017
Valuing University Startup Companies • Three accepted valuaHon methods- • Market Approach. Look at similar transacHons in open markets. • Cost Approach. Determine the value by calculaHng the amount of money required to recreate the property. • Income Approach. How much income can this company generate over the life of the company? In theory, this is far and away the best method.
Valuing Startup Companies- Pre-Revenue • It’s Hard!
Valuing Startup Companies- The Balance Sheet • Balance Sheet • Assets- • License or opHon to license university technology (usually untested technology) • Smart people with a Story (probably the source of any real value) • Friends and family • Some local or university entrepreneurial ecosystem • LiabiliHes- • LiZle or no cash or access to capital • LiZle or no management experience • Limited understanding of the market • Regulatory hurdles • Lots of mouths to feed • Angry and aggressive compeHtors
Valuing Startup Companies- Beware of Hockey S%cks Spending a $1 for Every $1 of Revenue- Not a recipe for success
Valuing Startup Companies- Why it is important to get the value correct • If the seed-stage valuaHon is too high… • The financial contribuHon is undervalued and too liZle stock received by investors • Easier for smart money to walk away • Seed rounds Hming can be significantly extended and a higher likelihood of a down round later • Problems if the company misses an important milestone • If the seed-stage valuaHon is too low… • Entrepreneurs are less moHvated • Increased diluHon aaer mulHple rounds of funding
Valuing Pre-Revenue Startup Companies- 3 handy methods • Venture Capital Method • Scorecard Method • Berkus Method
Valuing Startup Companies- Venture Capital Method • Post-money ValuaHon = Terminal Value ÷ AnHcipated ROI • Where- Terminal Value is anHcipated selling price of the company in 5 to 8 years • AnHcipated ROI 10 to 30X • Example- company needs $1 million cash and expected to sell for $50 million. Investors demand 20 % ROI $50,000,000 20 = $2,500,000. Less $1 million investment = $1.5 million Pre-money valuaHon.
Valuing Startup Companies- Scorecard Method Criteria Weigh*ng Comparison Adjusted Weigh*ng Entrepreneur, Team, Board 30% Size of Opportunity 25% Product/Technology 15% Compe**ve Environment 10% Sales/Marke*ng 10% Need for More Financing 5% Other 5%
Valua%on of Startup Companies- Berkus Method For a “perfect” idea, possibility of $2 to $2.5 million pre-money enterprise valuaHon
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