Valuing Early Stage and Start Up Companies and Sectors

Course Overview:

This advanced valuation and modelling course looks at the valuation approaches to be taken to enable participants to value sectors which may be at differing stages of development and growth profiles. Traditional valuation techniques assume a simple two or three stage growth profile and a terminal value or basic multiple based valuation tools. This course looks at some of the more difficult companies to value based on the underlying fundamentals of the sector in which the company operates.

The course covers companies at the early growth and start up stage, which would cover sectors such as technology, biotechnology and any early funding stage business. The key challenges associated with such companies are discussed and the best valuation approach considered.

As well as discussed some of the current issues with traditional cash flow and multiple based valuation approaches the course will cover more advanced valuation approaches. The course will also consider the role of risk assessment in the valuation process and how macro-economic analysis can affect the valuation approach taken.

Examples are provided to illustrate each issue.

Participants will be required to bring a laptop to the course.

Course Content:

Overview of valuation approaches

• Intrinsic valuation – traditional cash flow techniques
• Relative valuation – multiple based analysis
• Probabilistic valuation – scenario analysis, decision trees and simulations
• Real options valuation – additional value created through optionality

Other valuation issues

• Assessing risk – the risky risk free rate and other current valuation issues
• The economic cycle – incorporating macro-economic factors into a valuation

Valuing early stage and start-up companies and sectors

• A life cycle view of start-up companies
  • Start-up companies in context
• Characteristics of young companies and sectors
  • The key challenges with start-up companies
  • Visibility – a key valuation challenge
• Valuation issues – intrinsic value
  • Existing assets
    • How to value existing assets in a start-up
    • Cash burn and the effect on existing assets
  • Growth assets
    • The future of the business – high growth and growth phases
    • Assessing growth rates – the key component of value
  • Discount rates
    • Adjusting risk for small fats growing businesses
    • Discount rates for pure equity financed businesses
  • Terminal value
    • When to calculate terminal value
    • Reducing the dependence on terminal value
  • Value of equity claims
    • Assessing equity claims in a early stage business
• Valuation issues – relative valuation
  • Peer groups
    • Dealing with a lack of peers
    • Private vs public peer groups
  • Risk measures
• Valuing a start-up or early stage business in practice
  • Main errors made in valuing early stage businesses
  • Top down approach to a valuation
    • Macro vs micro analysis
    • Product success and market share
  • Bottom up approach to a valuation
    • Capacity capability
  • Estimating and using different discount rates
    • The use of phased discount rates
    • Discount rates as maturity approaches
  • Ensuring consistency in a valuation
  • Private and public multiples
  • Option to expand valuation
    • How optionality affects valuation