the next bubble: intellectual property, patents and their projected valuation
Startup Valuation and is there a Bubble?
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2 | 12/02/2015
Experience of the founder team Product with a
Unique Selling Proposition
Traction / Momentum
Consistence / completeness of business model
Scalability of business model
Market potential and competition
Business Plan and capital
required
External proof of concept
What can you contribute in addition to
capital?
Fair valuation (for the region) with
reasonable stake
Working together over the
investment period
Exit / liquidation event
Issues from the perspective of Angel Investor
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Traffic
Engagement
Registered users
Active users
Revenues
Profitability
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What drives returns?
The following factors are positively correlated with higher returns on the investment
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Source: Wiltbank/Boeker, Returns to Angel Investors, 2007
Hours of due diligence
Angel investor’s expertise in the industry
Active participation at least several times per month
Market for seed funding is becoming more efficient
Proprietary deal flow is declining as a driver of returns
Advisory support is becoming more important (than connective support)
0%
10%
20%
30%
40%
50%
60%
<1X 1X to 5X 5X to 10X 10X to 30X >30XPe
rcen
t of T
otal
Exi
tsExit Multiples
Distribution of Returns by Venture Investment
Overall Multiple: 2.6xAverage Holding Period: 3.5 years
3 years
3.3 years
4.6 years 4.9 years 6 years
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Venture Capital Method
The VC approach reflects the business model of invest, hold and exit
Pre-money value
Post-money value
Capital raised
Exit Value
Discount Rate = Expected IRR
Exit Value drivers
Revenue potential
Profitability: e.g. EBITDA
Multiple based on revenues / EBITDA
Competitivebidding process
Consider Dilution based on next funding rounds or option poolsThey reduce value / share and pre-money valuation
Investment horizon: 5 – 8 years
Terminal Value (EUR in m) 20,0 IRR 65%Investment Horizon (yrs) 6Post-money value 1,0 Capital raised 0,3 Pre-money value 0,7
Share in the Company 30%
Cash on Cash Multiple 20
Efficient exit process
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Asset-based valuation
The Asset-based valuation reflects the business model, the status quo and a make/buy decision by a strategic investor
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Total asset value
Other Assets?
CustomersConsider traction and quality of existing customersReplacement costs based on Customer Acquisition costs / Future value based on Customer Lifecycle Value
WorkforceExisting workforce in placeReplacement costs / multiples
Software, Know How
Software and DatabasesRelief from royalty / Replacement costs
Intellectual Property
Patents, trademarks, etc.Relief from royalty / Replacement costs
Fixed & current assets
Office equipment and Net Working CapitalReplacement Costs
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Valuation based on Scoring Method
Step 1: Determine the average pre-money valuation of pre-revenue companies in theregion and business sector of the target company.
Step 2: Set weighting for each category and benchmark the target company withaverage pre-revenue companies
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Category Weighting Benchmarking Factor
Strength of Entrepreneur and Team 50% 125% 0.6250
Size of the Opportunity 15% 150% 0.2250
Product/Technology – USP 15% 100% 0.1500
Competitive Environment 5% 75% 0.0375
Marketing/Sales/Partnerships 5% 80% 0.0400
Need for Additional Investment 5% 100% 0.0500
Other factors (e.g. grants received) 5% 100% 0.0500
Total 100% 1.1775
Average pre-revenue valuation EUR 1.5 m
Valuation of Target (pre-revenue) EUR 1.8 m
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All approaches provide a great framework…
…in the end supply and demand for investment opportunities drive the valuation
Star
tup
inve
stm
ent
oppo
rtun
ities
Angel investors
(Deals) experience and points of reference for
valuation
Industry knowledge
Angel network
Supply Demand
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What is happening in startup markets?
The world talks about the big ones as this is more exciting
Source: Statista, Capital IQ & i5invest Analysis
USD in bn0 10 20 30 40 50
UBERAirbnb
DropboxXiaomi
SnapchatPalantir
JingdongRocket Internet
PinterestZalando
Overview of most valuable start ups above USD 1 billion
02468
Latest pre-money
valuation
Market Cap(Jan 2015)
USD
in b
n
Rocket Internet
02468
Latest pre-money
valuation
Market Cap(Jan 2015)
USD
in b
n
Zalando
0
10
20
30
40
Feb 2011 Aug 2013 Jun 2014 Dec 2014 Jan 2015
Pre-
mon
ey (U
SD in
bn)
UBER
….and their development over time
+141%
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What is happening in transaction markets?
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Development of transaction multiples in Internet Software
Source: Capital IQ & i5invest Analysis
0,0
5,0
10,0
15,0
0,0
20,0
40,0
60,0
80,0
100,0
Q1-2/FY2013 Q3-4/FY2013 Q1-2/FY2014 Q3-4/FY2014
Transactions in Europe - Internet Software
Average transaction value (EUR in m)
Transaction Value / EBITDA
0 1 000,0 2 000,0 3 000,0
Scout24 Holding GmbH - 2013Host Europe WVS Limited - 2013
Civica plc - 2013Nets Holding A/S - 2014
VKontakte Ltd. - 2014Viber Media Inc. - 2014
Enterprise Value (USD in m)
Biggest Transactions
(USD in m)
Enterprise Value / EBITDA
Development of private placements in Internet Software
0,0
100,0
200,0
300,0
400,0
500,0
0,0
2,0
4,0
6,0
8,0
10,0
Aug 2014 Sept 2014 Oct 2014 Nov 2014 Dec 2014
Private Placements - Internet Software
Average money raised (EUR in m)
Number of transactions
012345678
Europe and USA USA Europe
Private Placements per region - Internet Software (money raised)
Q3 2014 Q4 2014
+20% +38%-30%
(USD in m)
(USD in m)
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What is happening in capital markets?
2/12/2015
66%
0,00
0,50
1,00
1,50
2,00
2,50
3,00
Europe USA
Enterprise Value / Sales - Jan 2015
Enterprise Value / Sales
How do capital markets look at Internet Companies?
Source: Capital IQ & i5invest Analysis
US-based companies trade at a 66% premium above their peers in Europe.
Companies in the Anglo-Saxon Regiontrade at higher multiples in general.
Does being in the US add value for the sake of being in the US?
0,00
1,00
2,00
3,00
4,00
5,00
6,00
-
2 000,0
4 000,0
6 000,0
8 000,0
10 000,0
United Internet AG(DB:UTDI)
Yandex N.V.(NasdaqGS:YNDX)
Telecity Group plc(LSE:TCY)
Top 3 "European"
Enterprise Value EV / Revenues
0,00
5,00
10,00
15,00
20,00
-
50 000,0
100 000,0
150 000,0
200 000,0
250 000,0
300 000,0
350 000,0
Google Inc.(NasdaqGS:GOOGL)
Facebook, Inc.(NasdaqGS:FB)
eBay Inc.(NasdaqGS:EBAY)
Top 3 American
Enterprise Value EV / Revenues
What are the big players and their valuations?
USD in bn
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Is there a bubble?
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Factors that should be considered when talking about a bubble
Interest rates are basically 0%
Total tech investments incl. M&A close to 2000
Rising pre-money values
IPOs with negative Earnings
Rising tech salaries
We are in Europe (with still big global potential)
BUT: We need to improve the ecosystem and create serial entrepreneurs with international exits
1
2
5
3
4
-
5 000,0
10 000,0
0
500
1000
Tech investments
Number of Deals
Investments (USD in m)
2
4
020406080
100
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
The percentage of IPOs with negative earnings
3
020406080
100
Pre-Money Valuations
Later Round
Second Round
(USD in m)
5
86000880009000092000940009600098000
2009 2010 2011 2012 2013 2014
Software Engineer Base Salary
(USD)
Source: i5invest analysis, PwC, DJ VentureSource, Jay R. Ritter / Business Insider and Glassdoor / BI.
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Cluster Spengergasse
Spengergasse 371050 Vienna
In the heart of Vienna‘s startup ecosystem
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What we do – Our Services
WE ARE LONG TERM PARTNERS (through all stages)START-UP MENTORINGSEED FUNDINGCORPORATE DEVELOPMENT / M&A ADVISORY
We focus on max 2 new companies per year – we aren’tspray & pray investors. We focus on sector expertise, mostlystrong IP/technology, international/US markets, rarelycopycat business models
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Who we are – Our Team
Founded 2007, Vienna - partner i5growth Inc. in Palo Alto
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- PARTNERS & FRIENDS – OUR ECOSYSTEM-
Herwig SpringerCEO Corp. Dev.,M&A
Patrick ProkeschDirector Corp. Dev.,M&A
Paul WeinbergerPartner
Markus WagnerChairmain of theAdvisory Board
AlexanderIgelsboeckAdvisory Board
Martin BrunthalerAdvisory Board
Georg NovakExecutive Assistant
Bernhard LehnerPartner
Vlad GozmanPartner
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Startup Mentoring and Seed Funding
Venture 1 Venture 2 Venture 3 Venture 4 Venture 5
Innovation Management and Product Strategy
Go-to-Market Strategy
Company Setup and Office Infrastructure
IT Dev. & Operations, Accounting, Finance
Seed Funding, Business Planning & Public Funding
HR & Recruiting
Marketing, PR & Media Planning
Social Media Marketing and SEO
Development
Project Management
Product Management
Development
Project Management
Product Management
Development
Project Management
Product Management
Development
Project Management
Product Management
Development
Project Management
Product Management
help ideas to grow
?
International Business NetworkBusiness development
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Startup Incubation – Top 10 learnings
1
2
6
5
3
4
7
9
8
10
Team up with the best/team members you know/complementary people/experienced pros
Better a small piece of success than a huge of a failure
Don’t wait until your product is perfect but create a Minimum Viable Product
Talk-talk-talk about your company/products, no one will steal it
Sell-sell-sell generate revenues – revenue is the best funding ever!
Don’t rely on viral effects, PR or social media (SEO, CPA, …)
Launch fast, A/B testing, try out, learn, mutate, adopt
Look for experienced investors (execs, managers, experts, …) expertise, money, network
Do it, don’t wait, don’t think about it, try it out
Build companies that earn money
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Corporate Development / M&A Advisory
Company and market analysis
Financial model and business plan
Indicative valuation Long- and shortlisting
of potential buyers Preparation of
transaction documents (Info Memo, Teaser & NDA)
Contacting short list with teaser and NDA
Distribution of Info Memo after receipt of signed NDAs
Preparation of management presentation
Setup of Data Room Assessment of LOIs Selection of bidders
SPA Negotiations with preferred buyer(s)
Development of final transaction structure (share/asset deal)
Signing of SPA Receipt of approvals Closing
Management presentations and site visits
Coordinating Due Diligence, expert meetings and Q&A session
Assessment of Binding Offers / Term Sheets
Selection of preferred buyer(s)
Phase 1Preparation
Phase 2Reach Out
Phase 3Due Diligence
Phase 4Negotiation
Key steps
Key success factors Understand dynamics
of transaction environment
Business Development to assure Fit for Exit
Establish the right first point of contact be it business or corporate development
Create quickly competitive process with several potential bidders
Negotiation tactics and mitigating reps & warranties
Leverage different stakeholders
Bridging the value gap
Comprehensive preparation of documents and company data
Fast, streamlined and efficient due diligencewith several bidders
Efficient sell side support to maximize returns