Valua%on of University Startups Panel Discussion with: Moderator: - - PowerPoint PPT Presentation

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