show me the money: jong lee at smecc - 20130205

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SME Clinic Series

Show Me The Money!

Jong Lee

Feburary 5, 2013

Hong Kong1

JLL Entrepreneur Series, Jong Lee 2

Thank You

For Coming!

JLL Entrepreneur Series, Jong Lee 3

Happy Hour

until 8PM!

• Founder & Managing Director of RGL Holdings, Ltd.

– Private Equity, Venture Capital, Turnarounds & Advisory

– Current focus on cross border tech, startups & SMEs, special

purpose real estate, social enterprise and education

– Active in Asia, N. America and Europe

• My Former Lives:

– H&Q Asia Pacific – Oldest Pacific Rim PE / VC Firm

– UBS – Technology Investment Banking

– Simpson Thacher & Bartlett – LBOs for KKR & Blackstone

• Lived and Worked in Hong Kong, Tokyo, Beijing,

Seoul, Los Angeles, Silicon Valley, New York, etc….

• J.D. Columbia University (yes, I’m a lawyer…)

• BAS (Bioengineering) & BA (Political Science).

University of Pennsylvania

Jong Lee

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Selected Deal Sheet

5

6

Community Involvement

6

RGL Holdings; Jong Lee 2013 7

Let’s Talk About

Money…

Different Kinds of [Money]

• Upfront Cash (YES!)

• Staged Cash

• Lines of Credit

• Guarantees

• In Kind

• Liquid Assets

• Resources

• What else?

• Equity

• Debt

• Convertible

• NREs

• Personal

• F&F

• Angel

• VC / PE

• Real Revenues!

RGL Holdings; Jong Lee 20138


What are you

doing?


Why is it Worth

Something?

What is of Value?

• The People

– You

– Your Team

• Customers

• Relationships

• Product

• Intellectual Property

– Technology

– Other IP

• Your Head Start

• Your Cash / Revs

• Your synergy with

someone or

something else

• Competition

• Location

• Regulation

• What else?



What is of Value

May Depend a Lot

on Who is Looking


Unfortunately, No

Matter What, A Lot

of Value Depends on

Timing and Supply

and Demand for

What You Have


Ok Let’s Talk VC

Valuations

Assumptions


• We are talking equity or convertible debt

• Your business is scalable and has

potential exit value as an IPO or M&A

within 3 – 5 years

• Let’s pretend we are in Sand Hill Road

• Let’s assume your company will

eventually have revenues and

profitability or a lot of users (something

we can readily measure)

Some Non Financial Ways VCs

Can Value Your SME• How much is your

team worth to

someone else (e.g.

Google, Apple, etc..)?

– Today? Next Year?

• How much is your IP

worth to someone

else?

– Today? Tomorrow?

• How Much are your

customers or

products worth to

someone else?


• How Much would it be

worth to someone to

take you out of the

market?



Rule of Thumb / Shotgun Approaches

• “Standard Deals”

– E.g. one size fits all

convertible debt deals

for successful

graduates of some

incubators

– E.g. “standard terms”

for some more

established angel

groups (valuation

ranges based on

company stage)

• Local “Market” Deals

– “Angels deals Palo

Alto are typically $X

for y% of the company

in common shares”

– Same but convertible

debt at a discount to

next round with max

– Series A means…

– Series B means…

– Series C means…


Financial Valuations

• Metrics Used:

– Your current and

future revenues


future profits


future user base


future asset base


future human base

• How Metrics are Used

– Revenue ratios

– Earnings ratios

– DCF

– $ per customer

– $ per engineer

– Enterprise Value

– PEG ratios

– What else???


Financial Valuations

• Revenue ratios

– Price per share vs

Revenues (FTM/TTM)

• Earnings ratios

– Price per share vs

Earnings (FTM/TTM)

• DCF

– Discounted Cashflows

– Net present value

exercise

• $ per customer

– Is there a range in

value $ per customer

• $ per engineer

– How much is each

engineer worth?

• Enterprise Value

– Equity – debt - cash

• PEG ratios

– Price earnings growth



VC Valuations are

often different from

strategic, angel or

F&F methods


It’s often about

COMPS COMPS

COMPS!

Comparables

• VCs (along with pretty much everyone

else) can only really value you based on

how you compare to your peers (present

or future)

• Who are your peers?

• What metrics can we use to compare?

• What timelines are we talking about?

• Which market are you talking about?


Comparables

• VCs rely heavily on recent comparable

transactions (especially for M&A)

• VCs rely heavily on relevant (not

necessarily just recent) public market

comparables to your company

• Different markets, countries, companies

matter a whole lot

• More art than science!!!



Example IPO Exit

Valuation Exercise


So Why Does Any

Of This Matter to

SMEs in Hong

Kong?


Great Question

Valuations Always Matter

• Aren’t we always hearing questions about

when VCs will start investing in HK?

• Valuations = Equity and Share

• Equity is expensive

• Fundamentals and the need to understand

comparables always matter

• Understanding how quickly supply and

demand for what you are, offer or have is

very importantRGL Holdings; Jong Lee 2013

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Open Q&A Clinic

Future Clinics

• Bootstrapping HK Style

• Term Sheets

• NDAs

• Stock Options

• Shareholder & Investment Agreements

• SME Loans, Grants and Programs

• SME Tech Toolkit



Please Fill Out the

SCC Questionaire!

31

Questions?

Thank You

[email protected]


show me the money: jong lee at smecc - 20130205

Business

jll entrepreneur series

convertible debt

means series

rgl holdings

hong kong

money

market

worth