STARTUP VALUATION (CONTROVERSY)

Tytus Cytowski, Managing Partner

BITSPIRATION FESTIVAL

KRAKOW, POLANDJune 13, 2014

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TYTUS CYTOWSKI

Attorney at Law

EDUCATION

• HARVARD LAW SCHOOL (LLM)• WARSAW UNIVERSITY (Mag Iur)

EXPERIENCE

• STARTUPS• VENTURE FINANCING• LICENSING

ADVISOR

• STARTUP WISEGUYS (Estonia)TRACTION TRIBE (Hungary)

• DEFY VENTURES (NYC)

3CYTOWSKI LLC

Disclaimers

Any US federal tax advice contained in this presentation is not intended to be used, and cannot be used, to avoid penalties under the Internal Revenue Code or to promote, market or recommend any transaction or matter addressed herein.

This material is for informational purposes only and do not constitute advertising, a solicitation, or legal advice and should not be construed as legal advice for any purpose whatsoever.

Information contained herein is not intended to create, and receipt thereof does not constitute formation of, an attorney-client relationship.

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CONTROVERSY?

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PRICES ARE CRAZY?

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INSTAGRAM $1B

SNAPSHOT $2 B

NEST $2 B

OCULOS $ 2 B

WHATSAPP $ 19 B

ESTIMOTE ?

INTELCLINIC ?

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STARTUP VALUATION DATA

YC $5-$8 M ($6.4 M Average)

Stanford Grad $1.5-$5 M ($3.3 M Average)

Google Employee $2-$5 M ($3.7 M Average)

Hardware $2.5-$6 M ($4.3 M Average)

Mobile Security $6-$ 9M ($5.8 M Average)

https://angel.co/valuations

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STARTUP VALUATION DATA

POLAND $2.5-$4.1 M ($3 M Average)

BULGARIA $500 G – $2.8 M ($1.3 M Average)

NYC $3-$5 M ($4.2 M Average)

SILICON VALLEY $3.1 -$6 M ($4.7 M Average)

https://angel.co/valuations

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DEPENDS

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LOW INTEREST RATES = SEARCH FOR YIELD = HIGH RISK ASSETS = ASSET PRICE UP = (FOREIGN) TECH STARTUPS = DISCONNECT/BUBBLE*

US MONETARY POLICY* Potential

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DIGITAL REVOLUTION

SOFTWARE IS EATING UP THE WORLD

PEAK OR VALLEY?

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DIGITAL REVOLUTION DESTROYED

TRADITIONAL VALUATION MODEL

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VALUATION MODELS

- MARKET METHOD

- ASSET METHOD

- INCOME METHOD

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VALUATION MISUNDERSTOOD

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HIGHLY SUBJECTIVE*

*VALUE OF PRIVATE VC MARKET NOT PUBLIC

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VALUATION IS TEMPORARY

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INVESTORS = CURRENT VALUE

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FOUNDERS = FUTURE VALUE

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ABILITY TO MEASURE MULTIPLES (P/E)

WALL STREET

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ABILITY TO GROW VERTICALS (REAL ESTATE)

– SILICON VALLEY

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VERTICAL KILLERS

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CONVERSION -> RETENTION-> ENGAGEMENT*

*Lean methodology key concept for VC valuation models

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CHANGES THE FUNDAMENTALS

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MEASURE 20/30+ YEARPERSPECTIVE*

*Different from Wall Street

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SCALEABLE BUSINESS MODEL

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TECHNOLOGY ADOPTION

A/K/AVIRALITY

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VALUATION DO NOT MATTER FOR EARLY STAGE

“Probability of gettingto the next stage”

-Paul Graham*

https://www.youtube.com/watch?v=2lcp0uZsY7k

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VALUATION = COST OF RUNNING EXPERIMENT plus 3 MONTH RUNWAY FOR FUNDRAISING*

*http://venturehacks.com

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FINANCING OF MISTAKES WITH O.P.M. (OTHER PEOPLE’S MONEY)

VENTURE CAPITAL

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VC MISTAKES* & PRICING**

*LOSING PORTOFOLIO HAS TO MAKE MONEY** SOLUTION INCREASE VALUATION OF WINNING STARTUPS

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PRICE* & OWNERSHIP**

*More Ownership More Value

**Less OwnershipLess Value

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DILUTION IN NEXT ROUND*

*EXIT VALUE ONLY TRUE TEST OF VALUE

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FOUNDER + INVESTOR COLLUSION (BIAS)

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THANK YOU!

WWW.CYTLAW.COM

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