Students to Start-ups

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The Les Kilpatrick
Students to Start-ups
Entrepreneurial Skills Workshop Series
The Art of Valuation Alex Moen Vice President,
CB Capital Partners
CB Capital Partners 860 Newport Center
Drive Newport Beach, CA 92660 (949)
219-7462 alex.moen_at_cbcapital.com
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Executive Summary

• Valuation Methodology
• Comparable Company Analysis
• Precedent Transaction Analysis
• Discounted Cash Flow
• Putting It All Together Determining a Valuation
  Range
• Appendix

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Valuation Methodology

• A potential institutional investor would
  typically utilize a combination of the following
  methods and techniques to value the Company
  including
• Comparable Company Analysis
• Value based on trading multiples of similar
  publicly traded companies
• Similar Transactions Analysis
• Value based on completed and pending transaction
  multiples in related industries
• Discounted Cash Flow (DCF) Analysis
• Value based on discounting the Companys
  projected cash flows back to todays value
• Book Value
• Minimum/liquidation value of the Company
• Ignores the future earning power of the Company

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Comparable Company Analysis

• Determines how the market would currently value
  the Company
• Advantages
• Reflects the markets opinion of future growth,
  trends and risks
• Includes premiums for size and maturity
• Disadvantages
• Often imprecise due to non-comparable data,
  non-financial issues and low sample size

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Medical Device Example
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Precedent Transaction Analysis

• Determines amounts paid for recent acquisitions
  of companies similar to the Company
• Advantages
• Includes control, synergy and auction premiums
• Provides precedent for transaction value range
• Reflects supply and demand for similar companies
• Disadvantages
• Often imprecise due to lack of data,
  non-financial issues and low sample size

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Precedent Transaction Analysis
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Discounted Cash Flow

• Determines the Companys value by summing the
  net present value of free cash flows the ensuing
  projected five years and the terminal value at
  the end of the fifth year using a terminal value
  multiple
• Advantages
• According to modern financial theory, this is the
  most "correct" form of valuation
• The method is least influenced by stock market
  conditions or the MA environment
• Principal valuation techniques used by foreign,
  large corporate, and LBO buyers
• Disadvantages
• Sensitive to assumptions of revenue growth,
  operating margins, fixed capital investment,
  working capital investment and weighted average
  cost of capital
• Does not account for a "control" premium
• Does not account for the value of synergies
• Does not account for potential auction premium

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Discounted Cash Flow
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Discounted Cash Flow
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Takeaways from Discounted Cash Flow

• Clearly define the DCF assumptions.
• Emerging technology and life science companies
  will likely require more significant discounting
  given the increased uncertainty that the early
  company will meet its projections.
• DCF analysis has been around (at least in some
  form) for centuries.
• Early-stage investors will likely review a
  prospects projections and DCF with skepticism
  be able to defend your assumptions.
• Be able to reference other valuation
  methodologies to further support your analysis.

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Putting It All Together Developing a Valuation
Range

Note The analysis above is a sample. Each
valuation range will have unique attributes given
the company and the corresponding industry.
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CB Capital Contact Information
Alex Moen CB Capital Partners 860 Newport
Center Drive Newport Beach, CA 92660 (949)
219-7462 (Direct) alex.moen_at_cbcapital.com
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Appendix
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Appendix A - Medical Device Companies in Orange
County
Source Orange County Business Journal Note
There are over 300 Medical Device companies in
Orange County alone.
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Appendix A - Medical Device Companies in Orange
County (cont.)
Source Orange County Business Journal
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Appendix A - Medical Device Companies in Orange
County (cont.)
Source Orange County Business Journal
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Appendix B - VCs with an Interest in Medical
Device Companies
Accuitive Medical Ventures Invested in WaveTec
Vision of Aliso Viejo in February 2009 De Novo
Ventures Invested in WaveTec Vision of Aliso
Viejo in February 2009 New Leaf Venture Partners
Invested in ReShape Medical of San Clemente in
February 2009 SV Life Sciences Invested in
ReShape Medical of San Clemente in February 2009
U.S. Venture Partners Invested in ReShape
Medical of San Clemente in February 2009 Versant
Ventures Invested in WaveTec Vision of Aliso
Viejo in February 2009

Note There are hundreds of prospective Medical
Device investors in the United States and abroad.
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Appendix C - Prominent UCI Alumni
Adam Tomasi, Ph.D., Kauffman Fellow, Alta
Partners

Adam joined Alta partners in 2006 as a Kauffman
Fellow and focuses on investments in the life
sciences. Originally trained as an organic and
medicinal chemist, Adam spent seven years in
early stage drug discovery with Gilead Sciences
and Cytokinetics. In his last technical position,
he founded and led the Anti-Infectives Medicinal
Chemistry Program at Cytokinetics, which was the
first group to validate KIP-1 as an anti-fungal
target, and played a key role in the creation of
Cytokinetics cardiovascular drug CK-1827452,
which is currently in clinical trials. Prior to
joining Alta, Adam was a student in the
Harvard-MIT Biomedical Enterprise Program he
completed internships at MPM Capital and Lehman
Brothers, where he was an Analyst covering the
biotech sector, and attended the Harvard Medical
School. Adam completed his Ph.D. at the
University of California, Irvine, where he was a
Fellow of the American Chemical Society and the
University of California Regents, and was a post
doctoral student with Peter Schultz at The
Scripps Research Institute/The Genomics Institute
of the Novartis Foundation. Adam holds a
Bachelor of Science in Chemistry from the
University of California, Berkeley, a Ph.D. in
Chemistry from the University of California,
Irvine, and a Masters of Business Administration
from the MIT Sloan School of Management.
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Appendix C - Prominent UCI Alumni
Brian Atwood, Co-Founder Managing Director,
Versant Ventures

Brian Atwood specializes in biotechnology
investing at Versant. Brian co-founded Versant
Ventures after spending four years at Brentwood
Venture Capital where as a general partner he led
investments in biotechnology, pharmaceuticals,
and bioinformatics. He also has more than 15
years of operating experience in the
biotechnology industry, with emphasis on
therapeutic products, devices, diagnostics, and
research instrumentation. Prior to launching
his career in venture capital, Brian was founder,
president, and CEO of Glycomed, a publicly traded
biotechnology company. At Glycomed, Brian
concentrated on business development and
strategic alliances, closing deals with Eli Lilly
Company, Millipore, Genentech, and Sankyo,
before leading the sale of Glycomed to Ligand
Pharmaceuticals. Prior to this, he co-founded and
served as director of Perkin Elmer/Cetus
Instruments, a joint venture for robotics
automation and genomics research instruments and
products later acquired by Perkin Elmer. Under
Brian's management, the venture developed and
launched the GeneAmp Polymerase Chain Reaction
(PCR) system, the fundamental DNA amplification
innovation responsible for fueling the explosive
growth of genomics research. Brian served on the
Board of Directors at Pharmion Corporation (sold
to Celgene in 2008). Brian currently serves as a
Board member at the private companies ForteBio
Inc., FivePrime Therapeutics, Inc., Veracyte,
Inc., Trius Therapeutics, Inc., Synosia
Therapeutics, OpGen, Inc., PhaseRx, Inc., and
Immune Design Corp., as well as public companies,
Cadence Pharmaceuticals (CADX), and Helicos
Biosciences (HLCS). Brian received a Bachelor's
degree in Biological Sciences from the University
of California, Irvine a Master's degree from the
University of California, Davis, and an MBA from
Harvard Business School.
Disclaimer Brian Atwood is focused on
biotechnology, pharmaceuticals and
bioinformatics.