Scribd Logo
Upload

Welcome to Scribd!

  • 233 views

    Michael McClintock Case1

    Uploaded by

    Mike MC
    The document discusses several key aspects of venture capital deals and startup valuations, including: 1) A term sheet outlines the terms and conditions of an agreement between investors and a startup company seeking financing. 2) Valuations are estimated using assumptions about future cash flows and comparisons to similar companies, with the goal of determining a pre-money valuation for financing rounds. 3) Terminal value, estimated far in the future, is calculated using anticipated revenues, price/earnings ratios, and other financial metrics to determine the potential long-term value of the company.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd

    Michael McClintock Case1

    Uploaded by

    Mike MC
    233 views2 pages
    The document discusses several key aspects of venture capital deals and startup valuations, including: 1) A term sheet outlines the terms and conditions of an agreement between investors and a startup company seeking financing. 2) Valuations are estimated using assumptions about future cash flows and comparisons to similar companies, with the goal of determining a pre-money valuation for financing rounds. 3) Terminal value, estimated far in the future, is calculated using anticipated revenues, price/earnings ratios, and other financial metrics to determine the potential long-term value of the company.

    Original Description:

    SpiffyTerm, Inc.: January 2000

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document discusses several key aspects of venture capital deals and startup valuations, including: 1) A term sheet outlines the terms and conditions of an agreement between investors and a startup company seeking financing. 2) Valuations are estimated using assumptions about future cash flows and comparisons to similar companies, with the goal of determining a pre-money valuation for financing rounds. 3) Terminal value, estimated far in the future, is calculated using anticipated revenues, price/earnings ratios, and other financial metrics to determine the potential long-term value of the company.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    233 views2 pages

    Michael McClintock Case1

    Uploaded by

    Mike MC
    The document discusses several key aspects of venture capital deals and startup valuations, including: 1) A term sheet outlines the terms and conditions of an agreement between investors and a startup company seeking financing. 2) Valuations are estimated using assumptions about future cash flows and comparisons to similar companies, with the goal of determining a pre-money valuation for financing rounds. 3) Terminal value, estimated far in the future, is calculated using anticipated revenues, price/earnings ratios, and other financial metrics to determine the potential long-term value of the company.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Michael McClintock In the context of Venture capital deals a term sheet is a document consisting of bullet-points that outline the

    terms and conditions of a business agreement. Once this has been executed it helps guide the business for a final agreement. These are very similar to letters of intent; because they are non-binding documents meant to help two future companies make an agreement. A term sheet typically includes the conditions for financing a startup company rather than a already existing company. These assumptions suggest that the company is very risky, but it could be very profitable. SpiffyTerm values their company at eighty million dollars before they go public. This will take a lot of investment money from other businesses to help them set an IPO price.

    b: The founders also wanted to do some sensitive analysis with their assumptions. They wanted to know how the valuations would change if the second round of financing required $3 million? And what would the valuation be if they raised $6 million up front with no further round thereafter? e: A friend of Bob, called Wuz, reasoned as follows: If Vulture Venture wants to pay only $1 per share, maybe the founders could simply increase their initial number of shares from 5 million to 10 million, and the option pool from 1.5 million to 3 million? This way everybody would win: the founders get more shares, and the investors get the price per share that they want. Based on this reasoning, should Wuz get an honorary MBA degree? f: The analysis so far implicitly assumes that the investors are holding straight equity. Under the term sheet proposed by Vulture Ventures, is this a valid assumption? (See P9 Conversion Right and Automatic Conversion) b: The founders also wanted to see what would happen if instead of the current deal, the investors were to agree with Annabellas scenarios and price the deal accordingly. In other words, what valuation does Annabellas expectation imply? (Assume a failure-adjusted discount rate of 70.59%)

    An option pool is one of the most contentious ideas, when a negotiation between venture capitalist and entrepreneurs. This also helps in the pre-money valuation of the company. This is just another way to lower the price if the company wants too. We need to consider the option pool because if you need to raise on your venture capital. The option pool will help dilute money more appropriately than investors would. The option pool gives investors an overflow pool.

    Terminal value is a selling price that is anticipated for a company far down the road. The terminal value cne be estimated by finding out the expected revenues for the future. Based on those estimates then terminal value will be easier to calculate. Companies need to use Price/earnings ratios to help find the terminal value too. For example a company has revenues of 5 million and expect to have 2 million after taxes, which is 40% from gross profits. Then you take 40 multiplied by 2 million to get 80 million terminal value even though this is unrealistic this is how you would calculate terminal value.

    Valuation is an important role in the negotiation process. Its relative to the percentage of ownership given to the investor of the venture capital in return for the investment they provided during the start-up. They use comparable to help value the company. They estimate it by looking at similar companies and comparing them side by side estimating their future cash flows and analyzing their past cash flows.

    You might also like