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The case explores the methodologies for valuing an early stage, IP based business. Endomagnetics is a university spin-off based on technology from University college London. By the time of the case the business has raised (and largely spent) a seed round and is about to raise ‘Series A’. The new CEO, Eric Mayes, is in discussion with investors. There is some interest and he knows that he’ll soon need to propose – and justify – a pre-money valuation. He has the usual set of base assumptions on market size and penetration along with information on similar businesses. The question is how he can assemble this information to produce a valuation. The case uses a series of spreadsheets (created by a MBA intern as it happens) that take us through all the alternatives from detailed bottom-up ‘decision –tree’ methods through to more sweeping market comparables, examining the strengths, practicalities and limitations of each approach.
- The challenges of valuing early-stage (pre-sales) businesses;
- The different valuation methodologies, from bottom-up to benchmark;
- Creating a logical flow – building a valuation methodology;
- The information required to populate these methodologies;
- The strengths and limitations of the various methodologies – and how these all get easier as sales commence;
- How executives use these methodologies in practice.
|Publication Date:||January 2013|
|LBS Case Code:||CS-13-007|
|Subjects:||Accounting valuations, Financing, Valuation methodology|