Valuation:
What Is My Company Really Worth?
Satellite Broadcast - January 18, 2001
Copyright 2001, Joseph G. Hadzima, Jr.
Senior Lecturer, MIT Sloan School of Management [email protected]
These slides may be used for teaching and academic purposes with attribution
Valuation:
What’s My Company Really Worth?
MIT ENTERPRISE FORUM, INC. ®
Marcia Hooper, Advent International
John Jarve, Menlo Ventures
Alex Laats, Informio Inc.
T.L. Stebbins, Adams Harkness & Hill
Moderator: Joe Hadzima, Main Street Partners
VALUATION
MIT Enterprise Forum, Inc.®
What’s My Company Really Worth?
• ANSWER:
At Any Given Time Your Company
Is Worth What Someone Will Pay
For It At That Time
Satellite Broadcast January 18, 2001
Joe Hadzima, Main Street Partners
WHAT DETERMINES WHAT
SOMEONE WILL PAY?
MIT Enterprise Forum, Inc.®
•
•
•
•
•
SUPPLY
DEMAND
WHEN
MARKET LIQUIDITY
METRICS FOR VALUATION
Satellite Broadcast January 18, 2001
Joe Hadzima, Main Street Partners
VALUATION - Macro Drivers
MIT Enterprise Forum, Inc.®
• Which Way Is The Tide Going?
– A Rising Tide Lifts All Boats
– But, A Falling Tide Strands Them
• Overall State of the Economy
– e.g. Purchasing Cycles: Will Customers Purchase Today?
• Condition of Public Equity Markets
– Time to IPO
– Acquisition Paid by High P/E Stock
Satellite Broadcast January 18, 2001
Joe Hadzima, Main Street Partners
VALUATION - Macro Drivers
MIT Enterprise Forum, Inc.®
• Funding Cycles of Venture Capital Investors
– Allocation of Funds By Pension Funds and Institutions
• How Do They Determine How Much To Allocate To Alternative
Investments Such as Venture Capital?
• How Much Venture Capital Is Available Today?
Satellite Broadcast January 18, 2001
Joe Hadzima, Main Street Partners
Money Continues to Flow Into
Venture Capital Funds
MIT Enterprise Forum, Inc.®
New $$$ Into Funds
(in Billions)
200
150
100
Average $ Per Fund
(in Millions)
50
0
$ Invested (Billions)
Avg $/Fund (Millions)
Number of Funds
1998
1999
2000- 3 Qtrs
28.7
113.9
252
59.2
151.4
391
70.2
191.8
366
Source: National Venture Capital Association
Satellite Broadcast January 18, 2001
Joe Hadzima, Main Street Partners
VALUATION - Macro Drivers
MIT Enterprise Forum, Inc.®
• Funding Cycles of Venture Capital Investors
– How Much Venture Capital Is Available?
– What Sectors Is It Invested In?
• “Anything.Com” last year at this time
• Optical Networking or Genomics today?
– What Stage of Business Is It Invested In?
• e.g. during the LBO craze, early stage venture capital was scarce
Satellite Broadcast January 18, 2001
Joe Hadzima, Main Street Partners
Venture Capital Investment Returns
MIT Enterprise Forum, Inc.®
Seed Stage Returns Are Up Substantially
100.0%
90.0%
Seed Stage
80.0%
Balanced
70.0%
Later Stage
60.0%
50.0%
All Ventures
40.0%
Buyouts
30.0%
Mezzanine
20.0%
All Private
Equity
10.0%
0.0%
1 Yr
Satellite Broadcast January 18, 2001
3 Yr
5 Yr
10 Yr
Source: Venture Economics Jan 2000
Joe Hadzima, Main Street Partners
VALUATION - Macro Drivers
MIT Enterprise Forum, Inc.®
Low
Sector A
Sector A
Sector A
Satellite Broadcast January 18, 2001
Sector B
Capital
Sector B
Sector B
High
Returns
Returns
High
Low
Joe Hadzima, Main Street Partners
VALUATION - MICRO Drivers
MIT Enterprise Forum, Inc.®
• For Any Given
Macro Environment
Given Sector
Given Stage of Business
• What Determines Valuation?
A Variety of Factors, including ...
– The TEAM and Experience
– The Business Model and Its Sustainability
– Evidence of a Business- Will the Dog Eat The Dogfood?
– Momentum or Lack Thereof
Satellite Broadcast January 18, 2001
Joe Hadzima, Main Street Partners
VALUATION - POSITIONING & NEGOTIATION?
MIT Enterprise Forum, Inc.®
• How Much of Valuation Is “Simply”
– Positioning?
• You Are Known By The Company You Keep
– Customers, Partners, Advisors
• The Train Is Leaving The Station
– Negotiation Skill?
• Having or Appearing to Have Alternatives
• Getting A Bidding War Going?
Satellite Broadcast January 18, 2001
Joe Hadzima, Main Street Partners
What’s Your Company Really Worth?
MIT Enterprise Forum, Inc.®
• SUMMARY OF VALUATION DRIVERS
• Macro Conditions and Trends
– The Economy
– The Public Equity Markets
– Funding Cycles and Relative Returns
• Company Specific Factors
– The Valuation “Story”
• Positioning and Negotiating Skills?
Satellite Broadcast January 18, 2001
Joe Hadzima, Main Street Partners