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These issues are common to all investments, focus on how investors and entrepreneurs solve them
Course Overview
Module 1: Business Valuation
Venture Capital Method DCF Method Real Options Method
- BNI: Understand the dynamics of deal negotiation from the perspective of the entrepreneur and the VC
Guessing Deals
Amazon Apple Biogen-Idec Bloomberg Facebook Groupon Microsoft Priceline Twitter Zipcar
Company Round A investment Month between founding and 1st investment Amount invested in A round. (USD Mil) Valuation in A round(USD Mil) (Post Money) Type of Investor
Firm A 78 1 16.13
Guessing Deals
Firm B Firm C Firm D Firm E Firm F <3 0.25 0.75 < 12 0.275 2.26 < 12 2.5 Individual VC 0.5 20 Individual Angel 1 4.8 13.4 VC Syndicate
Common Stock
Common Stock
Convertible Preferred
Convertible Preferred
Convertible Preferred
Convertible Preferred
Convertible Preferred
Common stock
Round B investment Month between A and B round Amount invested in B round. (USD Mil) Valuation in B round(USD Mil) (Post Money) Type of Investor Subsequent Rounds Years between last VC round and IPO Amount invested (US Mil) Valuation info (USD Mil) (Pre Money) Number of rounds Number of investors across rounds IPO Information Amount of Shares (Mil) Initial Price First Day Close Price Return First Day Proceeds (USD Mil) Market Cap at IPO (USD Mil) Current Mkt Cap (USD Mil) @ Feb 3,2012
No B Round
12 3.7 VC Syndicate
18 30 231 VC Syndicate
22 2 30.8 Individual VC
6 15.0 VC Syndicate
No B Round
No subsequent round
Still Private
Type of investment/ Security Type Round B investment Month between A and B round Amount invested in B round. (USD Mil) Valuation in B round(USD Mil) (Post Money) Type of Investor Subsequent Rounds Years between last VC round and IPO Amount invested (US Mil) Valuation info (USD Mil) (Pre Money) Number of rounds Number of investors across rounds
Convertible Preferred
Common stock
6 15.0 VC Syndicate
No B Round
2322.5 9 rounds 12
1140.2 6 rounds 16
No subsequent round
Company Round A investment Month between founding and 1st investment Amount invested in A round. (USD Mil) Valuation in A round(USD Mil) (Post Money) Type of Investor
Type of investment/ Security Type Round B investment Month between A and B round Amount invested in B round. (USD Mil) Valuation in B round(USD Mil) (Post Money) Type of Investor Subsequent Rounds Years between last VC round and IPO Amount invested (US Mil) Valuation info (USD Mil) (Pre Money) Number of rounds Number of investors across rounds IPO Information Amount of Shares (Mil) Initial Price First Day Close Price Return First Day Proceeds (USD Mil) Market Cap (USD Mil) Current Mkt Cap (USD Mil) @ Feb 3,2012
Common Stock
Common Stock
Convertible Preferred
Convertible Preferred
Convertible Preferred
Convertible Preferred
No B round
<9 0.99 4.9 Group of Angels 1 year 8,2 2 round 3 1.6 18 23.5 31% 28.8 438 85,390
12 3.7 VC Syndicate
18 30 231 VC Syndicate
22 2 30.8 Individual VC
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Fundraising Strategy
What determines the amount of capital raised?
- Capital intensity of industry - Competitive strategy, network externality - Capital market conditions (valuation)
Frequency of rounds?
- Reflection of how much control investors want - Can investment be structured as milestones? - Ability of firm to reach performance goals
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Company Round A investment Month between founding and 1st investment Amount invested in A round. (USD Mil) Valuation in A round(USD Mil) (Post Money) Type of Investor
Type of investment/ Security Type Round B investment Month between A and B round Amount invested in B round. (USD Mil) Valuation in B round(USD Mil) (Post Money) Type of Investor Subsequent Rounds Years between last VC round and IPO Amount invested (US Mil) Valuation info (USD Mil) (Pre Money) Number of rounds Number of investors across rounds IPO Information Amount of Shares (Mil) Initial Price First Day Close Price Return First Day Proceeds (USD Mil) Market Cap (USD Mil) Current Mkt Cap (USD Mil) @ Feb 3,2012
Common Stock
Convertible Preferred
Convertible Preferred
<6 0.52 VC Syndicate 3 year 7.9 2 rounds 14 4.6 22 28.75 31% 101.2 1,778 428,590
<9 0.99 4.9 Group of Angels 1 year 8,2 2 round 3 1.6 18 23.5 31% 28.8 438 85,390
22 2 30.8 Individual VC < 1 year 230 4 rounds 7 9.7 18 28 56% 174.3 778 971
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Company Round A investment Month between founding and 1st investment Amount invested in A round. (USD Mil) Valuation in A round(USD Mil) (Post Money) Type of Investor
Bubble Deals?
Firm F 1 4.8 13.4 VC Syndicate
Type of investment/ Security Type Round B investment Month between A and B round Amount invested in B round. (USD Mil) Valuation in B round(USD Mil) (Post Money) Type of Investor Subsequent Rounds Years between last VC round and IPO Amount invested (US Mil) Valuation info (USD Mil) (Pre Money) Number of rounds Number of investors across rounds IPO Information Amount of Shares (Mil) Initial Price First Day Close Price Return First Day Proceeds (USD Mil) Market Cap (USD Mil) Current Mkt Cap (USD Mil) @ Feb 3,2012
18 30 231 VC Syndicate < 1 years 1101.2 3 rounds 16 35 20 26.11 31% 700 12,727 15,580
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What is left?
Company Round A investment Month between founding and 1st investment Amount invested in A round. (USD Mil) Valuation in A round(USD Mil) (Post Money) Type of Investor Firm A 78 1 16.13 Individual Angel
Type of investment/ Security Type Round B investment Month between A and B round Amount invested in B round. (USD Mil) Valuation in B round(USD Mil) (Post Money) Type of Investor Subsequent Rounds Years between last VC round and IPO Amount invested (US Mil) Valuation info (USD Mil) (Pre Money) Number of rounds Number of investors across rounds IPO Information Amount of Shares (Mil) Initial Price First Day Close Price Return First Day Proceeds (USD Mil) Market Cap (USD Mil) Current Mkt Cap (USD Mil) @ Feb 3,2012
Common Stock
No B round
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Course Mechanics
Cases (5), Lectures (5), Guests (1)
- Guest: John Chory (Partner, Latham & Watkins)
Memos
Memos are 25% of grade
- Hand in memos for cases before class - Write to major decision-maker - Up to two pages of text - Be ready to discuss cases even if youre not handing in memo - Prepare presentation for negotiation exercise - Groups of up to 4 people, cannot be changed
Attach exhibits / calculations
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Class Participation
25% of final grade
Individual Based on quality and quantity Good chance to practice in low-risk environment Isn't class participation grade subjective?
Not after 10 classes TA will be taking notes in class
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- Ask questions
Sometimes whole class is lost
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Final Exam
50% of your grade
- Case based - Take home exam - Last day of class
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Availability
In person: Office Hours in E62-638
- Tuesday: 4:30pm - 6:00pm - Email us to make an appointment:
aschoar@mit.edu, carlstj@mit.edu
- We will not discuss any aspects of a case until we have done the case in class
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