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Hello, the topic in this session is finance

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Finance is very important and also difficult to understand

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Basically, we are going to talk about the money during the session

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Money is crucial for businesses

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Money is like blood for human beings

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Think about what happens if we don't have blood

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or if we lose too much blood

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What happens then? We'll die quickly.

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Same thing happens in the company

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If you don't have money,

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regardless of how valuable your products or services are,

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you'll fail immediately

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That's why, as an entrepreneur,

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we need to understand the concept of money very clearly

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The first subtitle is "Valuation of Startups"

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Are you ready? Okay, let's go together

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Look at this table

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This table is called capitalization table

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We call it a cap table

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Cap table is a very important documentation

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Why? Because it outlines the shareholders,

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which is basically the equity ownership structure

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It lists all the shareholders, the number of shares,

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and also the changes in ownership portion

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For example, you are just a startup H,

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and you have two founders
and each has 45%, totaling 90%

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and Hanyang University got 10%

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How many shares do you have?

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Your total shares are about 1,000,000 shares

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You have 1,000,000 shares

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The founders basically have 900,000 shares,

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and Hanyang University has 100,000 shares

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This is just the initial stage of your company

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in terms of the equity ownership structure

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So you follow me, right? It's pretty easy

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And then you got series A investment 
and then you got series B investment

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Then you got series C investment

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As you get the investment,

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you can notice that

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your founder's equity portion decreased to 73.5%

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and decreased to 61.7%

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and eventually, your equity became 53.5%

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Hanyang University's shares decreased to 5.9%

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At the same time, your total shares 
increased up to 2,133,361 shares

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This is a capitalization table

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This table shows what happens 
when you receive the investment

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Without any investment, it's pretty simple

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You got just 900,000 shares,

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and Hanyang University got just 100,000 shares, 
totaling 100%

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But if you receive additional external funding,

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your equity portion decreases

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At the same time, your total shares increased

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From now on, we are going to talk about these issues

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We say this equity dilutions

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From now on, we're going to talk about

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pre-money valuation and post-money valuation concept

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Look at the pre-money valuation

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Also we have post-money valuation

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Pre-money valuation refers to a company's estimated value

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before receiving external funding

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On the other hand, post-money valuation 
is a company's estimated value

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after receiving outside funding

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Why is this important?

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Because the pre-money valuation

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and post-money valuation allow us
to evaluate your equity portion

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I will give you very simple examples

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Well, think about it

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There is a pre-money valuation,

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then you got investment,

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then we have a post-money valuation

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Think about you and your investors

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agree that your pre-money value is $800,000

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Then investors will put $200,000

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Then how much is your post-money valuation?

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Of course, it could be $1M

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Now you understand the process because it is pretty easy

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We can easily calculate your investors'
shares and your shares

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How much investors shares?

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Investors put $200,000 out of $1M

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Then how much is it?

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He got 20% of the total shares

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What about you?

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Your share, you got $800,000

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because before the investment, your company's value is $800,000

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Your company's value is $800,000 out of $1M

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Then you got 80% of total share

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What if you don't have any investment?

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In this case, if you don't have investment, your valuation would be $800,000

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Then you get $800,000 in total

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So your equity share would be 100%

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But you invited your investors, and investors had $200,000

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They contributed to the company

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Then their share would be 20%, and your share would decrease to 80%

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Again, your portion decreased from 100% to 80%

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What is it called?

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It is called as equity dilution

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I want to give you more detail with examples

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For example, you put $50,000 to start your own businesses

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Starting businesses in terms of finance is about going into the casino

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Think about it

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You have $50,000 cash on hand.

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And then you enter the casino.

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You cannot use your cash in a casino

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Instead, you should change your cash into chips

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Right now, you should change your cash into chips

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How many chips should I change for cash?

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You change your cash into 10,000 chips

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You change your chips, about 10,000 chips

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Then each chip has different values

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If you choose 10,000 chips,

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each chip probably has a base value of $5

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So how much are the chips?

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You got $50,000-valued chips

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How many chips do you have?

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You have 10,000 chips right now

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If you change your cash into about 10,000 chips,

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then the value of each chip would be $50

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If you change your cash for 100 chips,

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then the base value of each chip would be $500

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Now you understand the mechanism, right?

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Anyway, inside the casino, you don't use the cash

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You use the chips

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Right now, your equity portion would be 100%

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Later, what's going to happen?

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One of the investors approaches you,

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and he tells you,

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"Wow, you made a great company!"

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"I thought your company's value would be $4M"

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Then you were surprised

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"Oh, my God, $4M company?"

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"I just started $50,000 company because I put just $50"

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Somebody believed that my company was valued at $4M

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Then you said that,

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"Well, thank you for recognizing my company"

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"Yes, my company's value is $4M"

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What just happened?

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How many chips do you have now?

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10,000 chips, base value of $5

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Your chips' base value automatically
changed from $5 to how much?

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$400

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It magically changed from $5 to $400

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The number of chips is the same, right?

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The number of chips is the same

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But the base value of your chips changed from $5 to $400

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Why is this happening?

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Because somebody else believed that your company's value is $4M

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This is what?

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This is pre-money valuation

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Pre-money valuation

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One of the investors evaluated your company's value at $4M.

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Then what happened?

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These investors really want to join your company

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Then how can they join your company?

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They asked you how to join your company

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And you said that,

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"Bring the money, change your cash into chips,

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and just put your chips in my house"

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That is a pretty simple way to join the company

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Then, the investors got $1M in order to join your company

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Again, how much is your company's value right now?

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Your company is valued at $4M now

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Then how much is each chip?

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$400
Do you remember that?

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So, in order to join your company,

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the investors changed their money into chips valued at $400 each

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They got $1M, right?

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Then, how many chips can they get?

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How many chips?

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You can easily calculate it

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$1M cashes, and you changed it to $400 chip

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Then, how many chips can you get?

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2,500 chips

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Investors changed their money into chips

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How many chips? 2,500 chips

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So, they got 2,500 chips

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So, they want to put this chip into your company

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Then, right now, your total chips changed, right?

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So, previously, you got just 10,000 chips, 10,000 shares

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But the investors put additional 2,500 shares

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So, totally, how much?

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Total number of shares became 12,500 chips

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12,500 shares

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Now you understand the mechanism, right?

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From now on, we can easily calculate your equity ratio

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Previously, the founder had just 100% of the shares

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Why? Because you got 10,000 shares out of 10,000

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Nothing changed

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Although your base value of each chip and each share changed,

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the total number of shares is the same

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Then, what happened later?

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Investors came to you, and they added 2,500 new shares, right?

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Do you remember that?

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Then, your total shares changed from 10,000 shares to 12,500 shares

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So, we need to calculate the founder's share again,

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based on the changed total number of shares

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Your share is the same as 10,000 shares,

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but out of 12,500 shares

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So, the total is 12,500 shares, and you got 10,000 shares

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Then, how much do you get?

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Your portion of the shares would be 80%

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Previously, your portion was 100%,

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but right now, your portion has decreased to 80%

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Then, what about the investor?

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Investors didn't have any shares before

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So, their share was just 0%,

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But they added 2,500 shares now

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so, they got a portion

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How much?

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We can easily calculate that:

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2,500 out of 12,500

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Then, his portion became 20%

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Okay, so, now you understand the mechanism

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how to calculate the equity ratio,

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and how your equity changes

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This change of the equity portion is called equity dilution

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Again, equity dilution occurs

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when a company issues new shares

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especially when you invite new investors,

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you should issue new shares

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Then, we need to calculate again

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Calculate your equity portion again and again

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Now, let's move on to the evaluation of the startup

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Basically, how to evaluate your values,

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how to estimate your value as a startup

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But actually, this is not an easy task

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because you just started your company,

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and then you don't have any revenue,

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you don't have any record

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Then, how to estimate your value?

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So, now we are going to talk about these issues together

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But remember, your value,

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your value should be based on

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the agreement between you and your investors

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Do you remember the previous case?

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And also, you know,

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when you estimate your value of your startup,

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then you need to negotiate with your investors

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Normally, if you've invited one of the investors,

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you give up around 10% to 30% of shares

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It means you should give them 10% to 30% as investors

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This is kind of a rule of thumb,

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but it depends on your situation,

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depends on your negotiation

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I want to give you kind of very specific

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and commonly used methods

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about the evaluation of your startup

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The first method is benchmark multiple

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Benchmark means referring to your peers

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or your competitors

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Remember, the benchmark multiple

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is the kind of metric that investors use

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to evaluate your company performance,

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and they compare your performance

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with your competitors

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So, basically, you and your investors

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should find out the compatible companies

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in the same or similar industry

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And then later on, you examine

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how much the company is worth

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as a multiple of its performance

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First thing to do,

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you need to find out a compatible company in the market

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And then second thing to do,

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you need to investigate the performance of these companies

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I will show you the examples

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Look at this

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There are two different types of companies in the market

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First company is a paper manufacturer

269
00:17:03.000 --> 00:17:05.800
Second company is a mobile commerce company

270
00:17:05.800 --> 00:17:10.000
Both got $1 miillion profit

271
00:17:11.700 --> 00:17:14.000
But interestingly,

272
00:17:14.000 --> 00:17:17.000
the paper company is valued at

273
00:17:17.000 --> 00:17:20.700
just $5 million in the market

274
00:17:20.700 --> 00:17:21.700
On the other hand,

275
00:17:21.700 --> 00:17:24.700
the mobile commerce company is valued at

276
00:17:24.700 --> 00:17:29.600
$20 million in the market

277
00:17:29.600 --> 00:17:34.800
So, we can easily compare the performance and the valuation

278
00:17:34.800 --> 00:17:37.000
Although they got just the same performance,

279
00:17:37.000 --> 00:17:39.700
as $1 million profit,

280
00:17:39.700 --> 00:17:41.700
but their valuation is different

281
00:17:41.700 --> 00:17:45.600
They were evaluated differently in the market

282
00:17:45.600 --> 00:17:48.600
Mobile commerce company

283
00:17:48.600 --> 00:17:50.700
was valued at $20 million,

284
00:17:50.700 --> 00:17:55.100
which is 20 times bigger than their profit

285
00:17:55.100 --> 00:17:56.000
On the other hand,

286
00:17:56.000 --> 00:17:59.400
the paper company was valued at $5 million,

287
00:17:59.400 --> 00:18:02.400
which is five times bigger than their profit

288
00:18:04.200 --> 00:18:07.200
Although you have the same performance,

289
00:18:07.200 --> 00:18:14.000
you can be valued differently in the market

290
00:18:14.000 --> 00:18:16.000
What about your company?

291
00:18:17.000 --> 00:18:22.200
If your company is a mobile e-commerce company,

292
00:18:22.200 --> 00:18:29.000
and you expect to have $100,000 profit next year,

293
00:18:30.000 --> 00:18:34.400
what could be the worth of your company?

294
00:18:34.400 --> 00:18:36.000
How much could it be?

295
00:18:37.000 --> 00:18:38.400
How much is your profit?

296
00:18:38.400 --> 00:18:40.000
$100,000

297
00:18:40.000 --> 00:18:45.000
Then how can you be valued in the market?

298
00:18:45.000 --> 00:18:46.000
How much?

299
00:18:46.000 --> 00:18:48.000
Well, in my opinion,

300
00:18:48.000 --> 00:18:52.000
it multiplies 20

301
00:18:52.700 --> 00:18:58.000
Because you are a mobile e-commerce company

302
00:18:58.000 --> 00:19:06.000
So, your valuation would be $100,000 profit expected

303
00:19:06.000 --> 00:19:08.000
multiplied by 20 times

304
00:19:08.000 --> 00:19:14.000
Then your value would be $2 million

305
00:19:14.070 --> 00:19:18.000
If your company is very similar to the paper company,

306
00:19:18.000 --> 00:19:20.000
then your value would be changed,

307
00:19:20.000 --> 00:19:22.000
not $2 million

308
00:19:22.000 --> 00:19:24.000
If your company multiplied by 5,

309
00:19:24.000 --> 00:19:31.000
then your company could be $500,000 in the market

310
00:19:31.000 --> 00:19:34.000
So, now you understand how to calculate your valuation, right?

311
00:19:36.000 --> 00:19:39.000
Remember, it is a benchmark multiple

312
00:19:41.000 --> 00:19:46.600
I want to give you another very useful method

313
00:19:46.600 --> 00:19:50.000
This is called Berkus method

314
00:19:50.000 --> 00:19:51.700
He is Berkus

315
00:19:51.700 --> 00:19:54.000
He is a very famous venture capitalist

316
00:19:54.000 --> 00:19:57.200
And Berkus method is named after his name,

317
00:19:57.200 --> 00:20:00.000
David Berkus

318
00:20:00.000 --> 00:20:06.000
He had much experience to estimate the valuation of the startup

319
00:20:06.000 --> 00:20:12.000
He identified and came up with a very simple method

320
00:20:12.000 --> 00:20:18.000
to calculate the valuation of the company

321
00:20:18.000 --> 00:20:23.000
Anyway, it is a well-known and popular method for valuing startup

322
00:20:23.000 --> 00:20:33.000
Basically, the Berkus method identifies five critical factors

323
00:20:33.000 --> 00:20:38.000
Five critical factors that impact a startup's performance

324
00:20:38.000 --> 00:20:43.200
Later, this method just indicates

325
00:20:43.200 --> 00:20:48.400
a value range from 0 to $500,000 for each factor

326
00:20:53.000 --> 00:20:55.000
I will show you the table

327
00:20:55.000 --> 00:20:57.000
Like this

328
00:20:57.000 --> 00:21:02.000
you list five critical factors

329
00:21:02.000 --> 00:21:04.000
which is an idea:

330
00:21:04.000 --> 00:21:06.000
Is it a great idea or not?

331
00:21:06.000 --> 00:21:09.000
Or do you have any working prototype or not?

332
00:21:09.000 --> 00:21:13.000
And do you have any high-quality management team or not?

333
00:21:13.000 --> 00:21:16.200
Or do you have any very specific and great strategy relationship

334
00:21:16.200 --> 00:21:19.000
between your consumers or stakeholders or not?

335
00:21:19.000 --> 00:21:24.400
Or do you have any product rollout or sales occurs or not?

336
00:21:24.400 --> 00:21:26.000
Something like that, right?

337
00:21:26.000 --> 00:21:29.000
Those five factors are critical factors

338
00:21:29.000 --> 00:21:32.000
that impact on your performance of the startup

339
00:21:32.000 --> 00:21:35.300
Later, Berkus method indicates

340
00:21:35.300 --> 00:21:43.000
a range of $0 to $500,000 value for each factor

341
00:21:43.000 --> 00:21:50.000
If you think this company has a really great idea,

342
00:21:50.000 --> 00:21:53.700
its value would be just $500,000

343
00:21:53.700 --> 00:21:57.400
Other than that, you can also evaluate based on quality

344
00:21:58.000 --> 00:22:00.000
I will give you an example

345
00:22:00.000 --> 00:22:03.400
Let's look at the Startup X

346
00:22:03.400 --> 00:22:09.000
Startup X has a decent business idea, but not very exciting

347
00:22:11.000 --> 00:22:15.000
And this is based on the business idea

348
00:22:15.000 --> 00:22:20.000
The second one, Startup X is currently working on the prototype

349
00:22:20.000 --> 00:22:23.200
that has not yet been completed

350
00:22:23.200 --> 00:22:26.200
Let's say it's just 30% done

351
00:22:26.200 --> 00:22:29.800
And Startup X has a very strong management team

352
00:22:31.000 --> 00:22:33.600
It's good on these factors

353
00:22:33.600 --> 00:22:37.000
Startup X has a few signs of consumer base

354
00:22:38.000 --> 00:22:41.700
It does not have good relationship with consumers

355
00:22:41.700 --> 00:22:45.500
or it does have a little bit good relationship

356
00:22:45.500 --> 00:22:47.000
A few signs, right?

357
00:22:47.000 --> 00:22:48.200
A good relationship

358
00:22:48.200 --> 00:22:51.500
StartupX has no clear signs

359
00:22:51.500 --> 00:22:52.700
It's not good

360
00:22:53.400 --> 00:22:56.400
Based on those five factors,

361
00:22:56.400 --> 00:22:59.400
when you evaluate yourself as investors,

362
00:22:59.400 --> 00:23:07.500
 you just put a number range from $0 to $500,000

363
00:23:07.500 --> 00:23:11.800
In this case, the idea is kind of 50%

364
00:23:11.800 --> 00:23:14.000
51, just half

365
00:23:14.000 --> 00:23:18.300
Then, it is $0 to $500,000

366
00:23:18.300 --> 00:23:20.200
How much you put?

367
00:23:20.200 --> 00:23:24.000
Yes, $250,000

368
00:23:24.000 --> 00:23:26.000
What about the prototype?

369
00:23:26.000 --> 00:23:28.000
I’d say it’s about 30% done

370
00:23:28.000 --> 00:23:33.000
30% out of $500,000, which is $150,000, right?

371
00:23:33.000 --> 00:23:37.000
Also, this company has a very strong management team

372
00:23:37.000 --> 00:23:38.000
So why not invest?

373
00:23:38.000 --> 00:23:40.700
$500,000 is the maximum

374
00:23:40.700 --> 00:23:43.000
And this company has a few signs

375
00:23:43.000 --> 00:23:45.000
yes, a few signs

376
00:23:45.000 --> 00:23:49.000
Not very great, but still, it's doable

377
00:23:49.000 --> 00:23:54.000
So, this company got $200,000

378
00:23:54.000 --> 00:23:57.000
And then the last one no revenue

379
00:23:57.000 --> 00:23:58.300
Wow, it's bad

380
00:23:58.300 --> 00:23:59.100
It's zero

381
00:23:59.100 --> 00:24:00.000
Zero dollars

382
00:24:00.000 --> 00:24:02.400
So, if you add everything up

383
00:24:02.400 --> 00:24:05.300
the total comes to $1.1 million

384
00:24:05.300 --> 00:24:09.800
So, how much is your company valued at?

385
00:24:09.800 --> 00:24:16.000
Your company can be valued at just $1.1 million

386
00:24:16.000 --> 00:24:17.600
by Berkus method

387
00:24:17.600 --> 00:24:19.000
What do you think?

388
00:24:19.000 --> 00:24:20.900
It's very easy to use, right?

389
00:24:20.900 --> 00:24:23.200
It's very simple and easy to use

390
00:24:23.200 --> 00:24:26.200
So, try practicing the Berkus method

391
00:24:26.200 --> 00:24:28.000
when you evaluate your company

392
00:24:28.000 --> 00:24:31.000
or when you evaluate other companies

393
00:24:31.000 --> 00:24:35.000
Let's move on to another method

394
00:24:35.000 --> 00:24:37.000
the Scorecard method

395
00:24:37.000 --> 00:24:41.200
Scorecard method is also very useful and commonly used method,

396
00:24:41.200 --> 00:24:45.000
but it's a bit more difficult than the Berkus method

397
00:24:45.000 --> 00:24:49.000
Scorecard method was invented by Bill Payne,

398
00:24:49.000 --> 00:24:53.000
a renowned angel investor in America

399
00:24:53.000 --> 00:24:54.200
Here's Bill Payne

400
00:24:54.200 --> 00:24:57.000
When you use Scorecard method,

401
00:24:57.000 --> 00:25:00.200
you need to understand the basic mechanism

402
00:25:00.200 --> 00:25:02.000
The basic mechanism is this:

403
00:25:02.000 --> 00:25:06.000
your company is compared with other companies

404
00:25:06.000 --> 00:25:10.000
other similar funded companies

405
00:25:10.000 --> 00:25:12.600
in similar regions

406
00:25:12.600 --> 00:25:14.000
Do you understand that?

407
00:25:14.000 --> 00:25:17.800
It's a little bit difficult to understand

408
00:25:17.800 --> 00:25:21.600
So, I'll give you very specific steps on how to use it

409
00:25:21.600 --> 00:25:24.000
The first step is,

410
00:25:24.000 --> 00:25:28.300
determine the median of the pre-money valuation

411
00:25:28.300 --> 00:25:31.200
of similar startups in your region

412
00:25:31.200 --> 00:25:34.200
You now understand

413
00:25:34.200 --> 00:25:38.200
the median value of the pre-money valuation,

414
00:25:38.200 --> 00:25:40.300
of other startups

415
00:25:40.300 --> 00:25:43.000
Second, determine the factors

416
00:25:43.000 --> 00:25:46.000
important factors, and their ranges

417
00:25:46.000 --> 00:25:50.000
based on your preference and your evaluation

418
00:25:50.000 --> 00:25:53.000
Factors, ranges

419
00:25:53.000 --> 00:25:58.000
Third, compare your company to others

420
00:25:58.000 --> 00:26:01.300
Basically, stronger, same, or weaker

421
00:26:01.300 --> 00:26:03.000
something like that

422
00:26:03.000 --> 00:26:05.000
I will show you a real example

423
00:26:05.000 --> 00:26:12.000
This is a 2019 valuation

424
00:26:12.864 --> 00:26:17.264
The first step is to determine the median value,

425
00:26:17.264 --> 00:26:20.700
the median pre-money valuation of similar startups

426
00:26:20.700 --> 00:26:25.700
This number will be given by some kind of association

427
00:26:25.700 --> 00:26:32.300
So, in 2019, the Angel Capital Association

428
00:26:32.300 --> 00:26:36.264
provided the median pre-money valuation

429
00:26:36.264 --> 00:26:38.704
of similar startups in America

430
00:26:38.704 --> 00:26:39.804
How much was it?

431
00:26:39.804 --> 00:26:42.600
At that time, the median value of the startup was

432
00:26:42.600 --> 00:26:43.964
$4 million

433
00:26:43.964 --> 00:26:46.924
This $4 million was simply given

434
00:26:46.924 --> 00:26:49.444
Your job is to get this number

435
00:26:49.444 --> 00:26:51.604
from some of the associations

436
00:26:51.604 --> 00:26:55.600
Then later, you remember this number $4 million

437
00:26:55.600 --> 00:26:57.724
So, the average company, basically,

438
00:26:57.724 --> 00:27:02.400
average startups are valued at

439
00:27:02.400 --> 00:27:05.700
kind of $4 million in this year

440
00:27:05.800 --> 00:27:09.100
Then later, you determine the factors

441
00:27:09.100 --> 00:27:10.600
What kind of factors?

442
00:27:10.600 --> 00:27:13.224
Yes the size of opportunity,

443
00:27:13.224 --> 00:27:17.063
strength of team, product＆technology,

444
00:27:17.063 --> 00:27:20.000
partnership/sales, competitive environment,

445
00:27:20.000 --> 00:27:23.800
need for additional investment, or others

446
00:27:23.800 --> 00:27:27.000
Those are very important factors for a startup

447
00:27:27.000 --> 00:27:30.000
So, you list up those factors by yourself

448
00:27:30.000 --> 00:27:36.000
Then later, you assess the range based on your preference

449
00:27:36.000 --> 00:27:37.800
on your evaluation

450
00:27:37.800 --> 00:27:42.000
If you think the size of opportunity is very important,

451
00:27:42.000 --> 00:27:46.000
then, you assess 30% to that factor

452
00:27:46.000 --> 00:27:48.100
Or, if you think it is not important,

453
00:27:48.100 --> 00:27:51.000
then assess 0% something like that

454
00:27:51.000 --> 00:27:52.350
The same applies to the team

455
00:27:52.350 --> 00:27:54.300
If you think the team is very important,

456
00:27:54.300 --> 00:27:57.524
then you assess kind of 25%

457
00:27:58.000 --> 00:28:04.100
So now, we’ve already assessed the range of each factor

458
00:28:04.800 --> 00:28:06.800
We've got several factors

459
00:28:06.800 --> 00:28:11.800
and we've assessed our ranges on each factors

460
00:28:11.800 --> 00:28:14.503
Then later, the third step

461
00:28:14.503 --> 00:28:17.000
is to compare your company to others

462
00:28:17.000 --> 00:28:19.800
For example, take a look at the size of opportunity

463
00:28:19.800 --> 00:28:22.500
We think our opportunity

464
00:28:22.500 --> 00:28:25.700
is similar to our competitors

465
00:28:25.700 --> 00:28:29.500
Then probably it is kind of the same

466
00:28:29.500 --> 00:28:34.000
Or, if we think we pursue the bigger opportunity,

467
00:28:34.000 --> 00:28:37.800
then you would evaluate it as stronger

468
00:28:37.800 --> 00:28:42.244
So, we compare your company to others

469
00:28:42.244 --> 00:28:45.800
For example,  size of opportunity I think it’s the same

470
00:28:45.800 --> 00:28:48.000
And what about strength of team?

471
00:28:48.000 --> 00:28:53.600
Our team is stronger than our competitors’

472
00:28:53.600 --> 00:28:55.500
so 125%

473
00:28:55.500 --> 00:28:57.800
What about product and technology?

474
00:28:57.800 --> 00:28:59.200
Our product and technology

475
00:28:59.200 --> 00:29:01.500
 are kind of much stronger than our competitors’

476
00:29:01.500 --> 00:29:03.300
so you put 150%

477
00:29:03.300 --> 00:29:05.600
On the other hand, our partnership sales market

478
00:29:05.600 --> 00:29:07.900
is kind of weaker than our competitors'

479
00:29:07.900 --> 00:29:10.000
so you put 80%

480
00:29:10.000 --> 00:29:11.300
Weaker means a lower number,

481
00:29:11.300 --> 00:29:13.000
and same means 100%

482
00:29:13.000 --> 00:29:16.100
and stronger means a bigger number

483
00:29:16.100 --> 00:29:18.600
Then later, what happens?

484
00:29:18.600 --> 00:29:23.000
You can easily calculate each number

485
00:29:25.000 --> 00:29:29.184
Then you get the ratios each ratio

486
00:29:31.224 --> 00:29:32.500
Like this

487
00:29:32.500 --> 00:29:36.300
When we multiply two scores,

488
00:29:36.300 --> 00:29:40.800
we get ratios on each factor

489
00:29:40.800 --> 00:29:44.500
Then we can easily sum up all the numbers,

490
00:29:44.500 --> 00:29:50.200
and how much do we get? 1.13 as a number 1.13

491
00:29:50.200 --> 00:29:52.500
 What does that mean?

492
00:29:52.500 --> 00:29:57.800
1.13 means that, based on this evaluation process,

493
00:29:57.800 --> 00:30:02.000
our company can be valued at

494
00:30:02.000 --> 00:30:07.203
1.13 times bigger than our competitors

495
00:30:08.000 --> 00:30:11.700
1.13 times bigger than our competitors

496
00:30:11.700 --> 00:30:14.100
So how much is the value of our competitors?

497
00:30:14.100 --> 00:30:15.200
Do you remember that?

498
00:30:15.200 --> 00:30:20.900
Okay, in 2019, our competitors' median value

499
00:30:20.900 --> 00:30:24.600
of the pre-money evaluation was $4 million

500
00:30:24.600 --> 00:30:29.300
So your company can be valued 1.13 times

501
00:30:29.300 --> 00:30:31.300
bigger than $4 million

502
00:30:31.300 --> 00:30:32.800
How much is it?

503
00:30:32.800 --> 00:30:35.184
You can easily calculate $4 million

504
00:30:35.184 --> 00:30:37.383
multiply by 1.13

505
00:30:37.383 --> 00:30:42.100
and you can get $4.53 million

506
00:30:42.100 --> 00:30:46.500
$4.53 million is your final valuation,

507
00:30:46.500 --> 00:30:48.800
according to Scorecard Method

508
00:30:48.800 --> 00:30:51.000
Did you understand that?

509
00:30:51.000 --> 00:30:52.800
Can you use this method?

510
00:30:52.800 --> 00:30:54.663
Of course, right?

511
00:30:55.100 --> 00:30:58.000
Let's move on to another method,

512
00:30:58.000 --> 00:31:01.400
which is the Risk Factor Summation Method

513
00:31:01.400 --> 00:31:03.400
Risk Factor Summation Method

514
00:31:03.400 --> 00:31:08.000
was developed by Ohio Tech Angels, as Angel Clubs

515
00:31:08.000 --> 00:31:09.800
There are two stages

516
00:31:09.800 --> 00:31:14.700
The first stage is to assess the average pre-money valuation

517
00:31:14.700 --> 00:31:17.000
of a similar companies in the same region

518
00:31:17.000 --> 00:31:18.504
which is pretty similar

519
00:31:18.504 --> 00:31:22.400
to the Scorecard Method we learned previously

520
00:31:22.400 --> 00:31:26.464
And second, the second step is to present

521
00:31:26.464 --> 00:31:29.504
a list of the possible risks

522
00:31:29.504 --> 00:31:32.344
At this point, you just focus on risks

523
00:31:32.344 --> 00:31:34.500
associated with your startups

524
00:31:34.500 --> 00:31:37.500
I’ll show you how to use it

525
00:31:37.500 --> 00:31:39.784
The first step is pretty similar

526
00:31:39.784 --> 00:31:41.600
to the Scorecard Method

527
00:31:41.600 --> 00:31:44.800
you get the number from several associations

528
00:31:44.800 --> 00:31:49.103
So the median number, median value

529
00:31:49.103 --> 00:31:51.700
of the pre-money valuation of similar companies

530
00:31:51.700 --> 00:31:53.550
was $4 million

531
00:31:53.550 --> 00:31:55.400
This number given, right?

532
00:31:55.400 --> 00:32:02.900
And then later, you present many, many possible risks

533
00:32:02.900 --> 00:32:06.200
many possible risks associated with your startup

534
00:32:06.200 --> 00:32:08.464
In this case, how many risks are there?

535
00:32:08.464 --> 00:32:12.900
1, 2, 3, 4 ... 10, 11, 12 risks

536
00:32:12.900 --> 00:32:16.000
12 risks you identified

537
00:32:16.000 --> 00:32:20.543
Then you should rate the meaning for your company

538
00:32:21.793 --> 00:32:24.103
If you think this risk

539
00:32:24.103 --> 00:32:27.000
stage of business

540
00:32:27.000 --> 00:32:30.400
is a kind of negative risk for you,

541
00:32:30.400 --> 00:32:32.223
it could be very negative

542
00:32:32.223 --> 00:32:34.000
You are in the negative stage,

543
00:32:34.000 --> 00:32:37.200
then you would rate it -2

544
00:32:37.200 --> 00:32:40.663
What about the management risk?

545
00:32:41.600 --> 00:32:44.100
If you evaluate your startup

546
00:32:44.100 --> 00:32:46.400
and think you don't have any management risk,

547
00:32:46.400 --> 00:32:49.100
then this risk factor

548
00:32:49.100 --> 00:32:51.100
is kind of positive for you

549
00:32:51.100 --> 00:32:56.304
 So you rate it as +2, something like that

550
00:32:56.504 --> 00:32:59.584
Then, based on your rating

551
00:32:59.584 --> 00:33:02.744
from negative two to positive two

552
00:33:03.000 --> 00:33:08.200
you put different dollars

553
00:33:08.200 --> 00:33:12.000
For example, if you rate negative two,

554
00:33:12.000 --> 00:33:17.000
then you put negative $500,000 on these factors

555
00:33:17.000 --> 00:33:20.500
On the other hand, if you rate positive two,

556
00:33:20.500 --> 00:33:25.200
then you put $500,000 as a value

557
00:33:25.200 --> 00:33:28.400
It looks complicated, but when you use this method

558
00:33:28.400 --> 00:33:31.964
in the real situation, you'll find that it's actually very easy

559
00:33:33.400 --> 00:33:36.600
When you use the Risk Factor Summation Method,

560
00:33:36.600 --> 00:33:38.943
you first identify

561
00:33:38.943 --> 00:33:42.000
and list all the factors 12 factors

562
00:33:42.000 --> 00:33:44.600
Then you evaluate each factor

563
00:33:44.600 --> 00:33:48.400
and apply these factors to your situation

564
00:33:48.400 --> 00:33:51.800
Then, looking at the stage of the businesses,

565
00:33:51.800 --> 00:33:56.300
we don't have to worry about stage of businesses

566
00:33:56.300 --> 00:33:58.600
it's not a risk for us

567
00:33:58.600 --> 00:34:00.600
So it's kind of positive

568
00:34:00.600 --> 00:34:02.000
What about management risk?

569
00:34:02.000 --> 00:34:03.500
Management risk a little bit

570
00:34:03.500 --> 00:34:06.100
A little bit, we are engaged in management risk

571
00:34:06.100 --> 00:34:09.400
It’s not very negative, but a little bit negative

572
00:34:09.400 --> 00:34:10.900
so we rate it as -1

573
00:34:10.900 --> 00:34:13.700
What about legislation risk?

574
00:34:13.700 --> 00:34:17.200
There’s no legislation risk

575
00:34:17.200 --> 00:34:21.600
but not positive, just normal(0)

576
00:34:21.600 --> 00:34:26.500
And what about the technological risk technology risk?

577
00:34:26.500 --> 00:34:30.500
Is there any risk for the technology in your company?

578
00:34:30.500 --> 00:34:33.500
Yeah, it could be very dangerous

579
00:34:33.500 --> 00:34:39.300
Sometimes other companies can sue us in terms of technology,

580
00:34:39.300 --> 00:34:43.400
or we cannot develop the relevant technology

581
00:34:43.400 --> 00:34:45.400
It can be dangerous, it can be risky

582
00:34:45.400 --> 00:34:48.100
So in this case, it's kind of very negative  -2

583
00:34:48.100 --> 00:34:53.600
Anyway, you rate each risk about your company,

584
00:34:53.600 --> 00:34:58.200
and you write it down from -2 to +2

585
00:34:58.200 --> 00:35:02.300
Then based on your rating, you put the different dollars

586
00:35:02.300 --> 00:35:05.800
Like this, if you rate +2,

587
00:35:05.800 --> 00:35:10.100
then you put +$500,000

588
00:35:10.100 --> 00:35:15.200
If you rate -2, then you put -$500,000

589
00:35:15.200 --> 00:35:18.800
Then, you add up everything

590
00:35:18.800 --> 00:35:23.600
Then you get the valuation adjustment dollars

591
00:35:23.600 --> 00:35:24.624
How much?

592
00:35:24.624 --> 00:35:27.064
Positive $250,000

593
00:35:27.064 --> 00:35:28.400
What does that mean?

594
00:35:28.400 --> 00:35:33.300
It means your company’s value is greater

595
00:35:33.300 --> 00:35:37.600
how much greater? $250,000 greater

596
00:35:37.600 --> 00:35:40.500
than that of your competitors

597
00:35:40.500 --> 00:35:42.500
Then how much are your competitors valued at?

598
00:35:42.500 --> 00:35:45.144
Your competitors valued at how much?

599
00:35:45.144 --> 00:35:47.000
 $4 million, do you remember that?

600
00:35:47.000 --> 00:35:50.500
So basically, you just add up these numbers,

601
00:35:50.500 --> 00:35:55.000
$250,000 to your competitors'

602
00:35:55.000 --> 00:35:58.800
your competitors' median value, which is $4 million

603
00:35:58.800 --> 00:36:00.600
Put them together how much is it?

604
00:36:00.600 --> 00:36:05.400
Yes, $4M + $250,000

605
00:36:05.400 --> 00:36:12.500
So your company can be valued at $4.25M

606
00:36:12.500 --> 00:36:14.800
Can you understand that?

607
00:36:14.800 --> 00:36:16.903
Now you understand it, right?