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Team 6: Valentin, Jananee, Ethan, Helen, RonakOutreach Networks1.) What Are the challenges of valuing an early state company?
2.) In what ways is ORN a typical Startup Company? In what ways is it atypical?
1.) Some startups have no or very little revenue and operating losses to do any forecasting2.)Most young firms are dependent upon private capital, owner savings and venture capital followed by private equity lateron due to which many of the standard techniques we use to estimate cash flows, growth rates and discount rates either do not work or yield unrealistic numbers3.)Using the discounted cash flow is a hit or miss as it is very heavy on the placement of your assumptions. Assumptions on Early-Stage company's are harder to manage especially with a teche compay due to the nature of its early cash flows.4.) Comparables and precedent transactions are not as accurate with ORN compared to public companies as the business models of startups are usually much different than their predecessors in the industry.
3.) What is the Value of the firm under the venture capital methodSee 'Valuation' tab (lower section of the worksheet)4.) What is the Value of the firm under discounted cash flow methodSee ' Valuation' tab (upper section of the worksheet)5.) Is Everest Partners justified in asking for a 30% Equity StakeTypical:-75% of the firm is owned by Perez and 25% is owned by the CFO and other employees- If the company was not a startup, it would have investment funds and ownership from other companies as well- The company also had little visibility into future sales projections, making it difficult for them to predict operating results and sales, hence this is typical of a startup, because of the forecasting difficulty- The company did not have a perfect comp as they are a disruptor. This is normal with a startup company as their comps are usually only about 50-75% comparable to other existing companies because of their business model- Large Growth in Revenue early on is typical of early state startup companies. This becomes more uncertain as the business moves further.