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Investment Process
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The success of investments in an early stage company depends on people and their ability to execute on a detailed business plan, therefore a lot of emphasis is placed on people.
- The structure of the investment is vital and requires creative and often complex terms.
- Pricing is a key factor which needs to be carefully analyzed and negotiated.
- A disinvestment strategy is required in order to maximize a timely return.
Investment Selection
- Management Team: Experienced, in-depth knowledge of business, result oriented.
- Innovative Products/ Proprietory Technology: Highly differentiable, superior, specialized expertise, meets market needs.
- Business Plan/ Milestones: Establish and approve a business plan including milestones.
- Substantial Investment Position: Ability to obtain substantial investment position, influence selection of management and strategic direction of company.
- Valuation: Negotiate and obtain a fair pricing structure.
Initial Investment Valuation
- Selection process unveils valuation assumption
- Major criteria:
- Technology value
- Capital requirements
- Market potential
- Capital structure
- Realistic income statement over 3-5 years
- "Auction"
Determination of NAV of private companies
- The original cost: Considered an approximation of the fair market value at the time of the transaction.
- Write off: NAV calculation at cost, less any write-off deeemed necessary if subsequent performance is below business plan.
- Capital increase: NAV calculation in principle based on the capital increase price, less 10% to 29% discount if deemed necessary based on valuation factors.
- Write up: A write up is recognized when a significant event occurs such as increased profitability and achievement of milestones.
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