BUILD SIGNIFICANT VALUE

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SOLID BUSINESS FOUNDATIONCustomers, product to market fit, marketing, brand, team, office,

infrastructure, distribution, partners, website

ESTABLISH VALUATION

EXIT / SELL

BUSINESS OBJECTIVE

2 to 3 times annual profit}

TRADITIONAL VALUATION

Discounted cash flow methodology:

‣ Risk

‣ Future profit potential

‣ Sector

‣ Timing

‣ Strategic value to investor or buyer

‣ “Brand”

VALUATIONS

RETAIL

12MEDIA

12

Source: ASX

FINANCE

11.3MINING

12PROPERTY

9INTERNET

22

ASX average 12 x

Private companies average 2.5 x

The value gap is called “private to public arbitrage”

PUBLIC VALUATIONS

TRADITIONAL BUSINESS PTY LTD

$500k profit

EXIT

TRADE SALE @ 2 x = $1 million

STRATEGIC SALE @ 4 x $2 million

SALE TO LISTED CO @ 6 x = $3 million

ASX IPO @ 8x = $4 million

EXIT PRICE

To achieve a higher sale price, it’s much smarter to focus on not only increased profit

but also HOW to sell and WHO to sell to.

VALUATION METHODOLOGIES AND KEY VALUE DRIVERS

START UP VALUATIONS – ART OR SCIENCE?

• Rule of thumb

• Simple math

• Experience

• Investor objectives

DIFFERENT TYPES OF BUSINESS = DIFFERENT LEVEL OF VALUE

• Lifestyle start-ups: work to live their passion

• Small business start-ups: work to feed the family

• Scalable start-ups: born to be big

• Buyable start-ups: Acquisition targets

• Social start-ups: driven to make a difference

KEY BASELINE MEASURES FOR ALL START UPS

1. Management: founder’s backgrounds and relevant experience

2. Market: size of market, competition, barriers to entry

3. Product/service: problem and solution, unique value proposition

4. Business model: Scalability, sales strategy, strategic relationships

“BUT THAT’S NOT FAIR!”SAID THE ENTREPRENEUR

• “I’ve already put heaps of money into this”

• “I’ve worked really hard”

• “My ‘market’ (aka friends and family) told me they love it!”

• “I just think that’s what it’s worth”

THE REALITY OF VALUATIONS

THE GAME IS IN THE NAME VALUEATION

You must be focussed on building value over anything else - don’t get distracted

ACTIVITY: THE WHEEL OF VALUE

IMPORTANT VARIABLESFOR EARLY STAGE VALUATIONS

1. The value of a start up is determined largely by acceptance from both parties

2. There are 2 major considerations: a) Economicsb) Control

3. Be realistic - understand your growth milestones, how much you need and how much control you are prepared to give up to get there