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Formulate an Offer

Formulate an Offer. Stephen Lawrence and Frank Moyes Graduate School of Business University of Colorado Boulder, CO 80309-0419. Course Outline. This Week. Valuation and Offer. Valuation. Use VC Method to value company Assume IPO or acquisition Five year horizon (max)

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Formulate an Offer

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  1. Formulate an Offer Stephen Lawrence and Frank Moyes Graduate School of Business University of Colorado Boulder, CO 80309-0419

  2. Course Outline

  3. This Week

  4. Valuation and Offer

  5. Valuation • Use VC Method to value company • Assume IPO or acquisition • Five year horizon (max) • Use “reasonable” PE ratio to estimate FV • Use “reasonable” discount rate • Calculate equity give-up • Develop offer consistent with value

  6. Price-Earnings (PE) Ratio • PE = 15 • Long term average of stock market • PE > 15 • Hot sectors of the economy with rapid growth • PE < 15 • Mature sectors of economy, slow growth • Look for “comps” in the market

  7. Seed capital 80 to 100% Startup financing 50 to 70% First-stage financing 40 to 60% Second-stage financing 30 to 50% Bridge financing 20 to 35% Restart financing variable Discount Rates

  8. Factors Affecting Discount Rates Total Discount Rate Risk of failureadjustment Cash Flow Adjustment Value ofVC advice Value Added Investmentnot liquid Justifiable Discount Rate Liquidity Marketsensitivity Systematic Risk Risk-freeinvestment Base Rate Seed Stage 1 Stage 2 Bridge IPO Sahlman, A Method for Valuing High-Risk, Long-Term Investments, teaching note, HBS 9-288-006.

  9. Offer • Use valuation to determine offering • Offer percentage of ownership consistent with investment and future value • For investor, report • IRR • ROI • Future Value

  10. Valuation & Offer Spreadsheet

  11. Executive Summary

  12. Critically important First (and only?) chance to sell your concept Two pages (max) Sections match major parts of plan Cut and paste from the rest of the plan Rewrite for logic and clarity Organization Introduction Company Overview Product/Service Description Industry and Marketplace Analysis Marketing Strategy Operations Development Financials Offering Executive Summary

  13. Single page Selling vs. Summary Excite quickly VC’s have less time, less patience Headings Opportunity Solution Competitive Advantage Process Positioning Revenue Financial Management Alternative Executive Summary

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