Uday Damodaran
XLRI Jamshedpur
Session 3:
Financing Your Start-Up: Magic or Logic?
BM 15-17: FM II
Session 3
Uday Damodaran
XLRI Jamshedpur
New Venture Financing
Read Bladelogic?
Quiz?
BM 15-17: FM II
Session 3
Uday Damodaran
XLRI Jamshedpur
Marvin
Entrepreneurs raise $100,000 from savings and personal
loans and purchase one million shares. $10,000 spent on legal
and other expenses)
Market value balance sheet?
BM 15-17: FM II
Session 3
Uday Damodaran
XLRI Jamshedpur
Market Value Balance SheetThe Beginning
Entrepreneurs Equity $1,000,000
Cash 90,000
Intangibles $910,000
BM 15-17: FM II
Session 3
Uday Damodaran
XLRI Jamshedpur
Marvin
Entrepreneurs raise $100,000 from savings and personal
loans and purchase one million shares. $10,000 spent on legal
and other expenses)
First Meriam Venture Partners agrees to buy 1 million shares
at $1 each
Market value balance sheet?
After-the-money-valuation and implicit valuation on the
entrepreneurs idea/ commitment?
BM 15-17: FM II
Session 3
Uday Damodaran
XLRI Jamshedpur
Market Value Balance..First Stage, Post-Money
Entrepreneurs Equity $1,000,000
First Meriam Equity $1,000,000
Cash 1,000,000
Intangibles $1,000,000
BM 15-17: FM II
Session 3
Uday Damodaran
XLRI Jamshedpur
Marvin
Entrepreneurs raise $100,000 from savings and personal
loans and purchase one million shares. $10,000 spent on legal
and other expenses)
First Meriam Venture Partners agrees to buy 1 million shares
at $1 each
Market value balance sheet?
After-the-money-valuation and implicit valuation on the
entrepreneurs idea/ commitment?
Paper gain for the entrepreneurs?
BM 15-17: FM II
Session 3
Investment of First
Meriam in what
form? Preferred
stock with
automatic
conversion
Uday Damodaran
XLRI Jamshedpur
MarvinSecond Round VC
Entrepreneurs raise $100,000 from savings and personal
loans and purchase one million shares. $10,000 spent on legal
and other expenses)
First Meriam Venture Partners agrees to buy 1 million shares
at $1 each
Second Stage Financing: First Meriam $1.5 million (WHY?),
two other VCFs and some wealthy individuals
Market value balance sheet, as given in text?
BM 15-17: FM II
Session 3
Uday Damodaran
XLRI Jamshedpur
Market Value Balance SheetSecond Round, Post-Money
Entrepreneurs Equity $5,000,000
Cash 4,000,000
First Meriam Equity, $5,000,000
First Round
Fixed Assets $1,000,000
New Equity,
Second Round
$4,000,000
Intangibles $9,000,000
BM 15-17: FM II
Session 3
Uday Damodaran
XLRI Jamshedpur
MarvinSecond Round VC
Entrepreneurs raise $100,000 from savings and personal
loans and purchase one million shares. $10,000 spent on legal
and other expenses)
First Meriam Venture Partners agrees to buy 1 million shares
at $1 each
Second Stage Financing: First Meriam $1.5 million (WHY?),
two other VCFs and some wealthy individuals
Market value balance sheet, as given in text?
After-the-money-valuation and number of shares issued at
what price?
BM 15-17: FM II
Session 3
10
Uday Damodaran
XLRI Jamshedpur
Marvinto the IPO
Entrepreneurs raise $100,000 from savings and personal
loans and purchase one million shares. $10,000 spent on legal
and other expenses)
First Meriam Venture Partners agrees to buy 1 million shares
at $1 each
Second Stage Financing: First Meriam $1.5 million (WHY?),
two other VCFs and some wealthy individuals
Mezzanine Financing
And then IPO
Paper gains turn into fungible wealth!! (Facebook IPO!)
BM 15-17: FM II
Session 3
11
Uday Damodaran
XLRI Jamshedpur
Magic or Logic?
Brealey & Myers..
Does this sound like a (paper) money machine?
And therefore the case: Bladelogic
The setting?
BM 15-17: FM II
Session 3
12
Uday Damodaran
XLRI Jamshedpur
Bladelogic
Large and growing market, but revenues difficult to achieve,
forecast
At current burn rate, 12 months of cash
BM 15-17: FM II
Session 3
13
Uday Damodaran
XLRI Jamshedpur
Bladelogic..Setting
Bladelogic
Down Round: something you would not want to get into!
How to secure a new financing round without participation
of existing investors?
At what price would current investors participate?
BM 15-17: FM II
Session 3
14
Uday Damodaran
XLRI Jamshedpur
Bladelogic..
Dev & Vijay: what did they get out of their earlier ventures?
The only thing worse than being poor, is being poor
again!
And then, EIRs with Bessemer and Battery.!!
Bessemer Venture Partners, big name!
BM 15-17: FM II
Session 3
15
Uday Damodaran
XLRI Jamshedpur
Bladelogic..Financing Strategy
Dev (p.6): wanted to preserve as much founders equity as
possible
Logic? Pros and cons?
And the valuation logic?
BM 15-17: FM II
Session 3
16
Uday Damodaran
XLRI Jamshedpur
Bladelogic..Terms
Option pools, pre-money and post-money valuations, coinvesting
BM 15-17: FM II
Session 3
17
Uday Damodaran
XLRI Jamshedpur
Bladelogic..Progress
$500,000 order from Sprint, large corporations
Series B: Dev (p.8): happy to re-up but also wanted to
cultivate other possibilities
Series B: $5 million with a share price of 75 cents
BM 15-17: FM II
Session 3
18
Uday Damodaran
XLRI Jamshedpur
Bladelogic..Challenges
p.9 twelve month comfort zone for cash
BM 15-17: FM II
Session 3
19
Uday Damodaran
XLRI Jamshedpur
Exhibit 4
Understood how the post-valuation works out?
From Series A to Series B how much has the value
increased by, and what are the sources?
How much is the entrepreneurs paper gain from Series A
to Series B?
BM 15-17: FM II
Session 3
20
Uday Damodaran
XLRI Jamshedpur
Bladelogic..Options
Reduce cash burn rate: how?
Raise funds through a down round
Sell to a strategic investor
BM 15-17: FM II
Session 3
21
Uday Damodaran
XLRI Jamshedpur
Group Assignment
A: Business Plan
i. Read the Handout Raising Start Up Capital in-class quiz
will be based on this
Re-work your financing plan, splitting the financing into
rounds or stages, and outlining your strategy, if any.
Ii. Why would investors keep coming to you at later stages, and
at hopefully higher valuations? What would be your source of
competitive advantage/ grounds for commanding a good
valuation?
File name: Name your submission file name as
Submission2_SectionX_GroupYY where X= A,B or C and YY =
Your Group Number
Deadline: Midnight, Monday, 18th January
BM 15-17: FM II
Session 3
22
Uday Damodaran
XLRI Jamshedpur
Group Assignment
B: Live Case
Prepare a (maximum) two-page write up highlighting your
favorite start-up financing story from anywhere in the world, of
whatever vintage. Say why you liked the particular story
File name: Name your submission file name as
Submission3_SectionX_GroupYY where X= A,B or C and YY =
Your Group Number
Deadline: Midnight, Monday, 18th January
One of the lesser
known Unicorns
or anything
BM 15-17: FM II
Session 3
23
