Equity Crowdfunding Snapshot: 5 metrics from the first $5m raised

Last week NZ equity crowdfunding (ECF) surpassed $5m in capital raised. In total, fourteen ECF offers have been made since the Financial Markets Authority issued the first licenses in the middle of last year. Of the fourteen offers; seven (including Invivo) have been successful, five are live but have not reached the minimum offer threshold and two were unsuccessful.

One of the interesting aspects of ECF is the increase in transparency of early stage capital raising processes. Listed below are five metrics from the first fourteen ECF offers.

1. 70% of offers were for $350,000 or less

The minimum offer was $50,000 and the maximum was $750,000 from Pledgeme and Aeronavics respectively.

Offer-Ranges_20150322

[Read more…]

4 Steps to valuing an early stage company for a capital raising

One of the most common reasons to value an early stage company is for a capital raising. Earlier this year I wrote a blog post outlining four approaches to valuing early stage companies. The analysis focused calculating the enterprise value of early stage companies i.e. 100% of the company on a cash and debt free basis based on forecast financial information. This post will consider the valuation of early stage companies, particularly pre-revenue or minimal revenue businesses, in the context of raising capital.

Two points to be aware of when valuing early stage companies for a capital raising are:

  • Valuation of early stage companies, particularly pre-revenue, is very subjective and spending a lot of time and money on the valuation is unlikely to result in a more “accurate” valuation.
  • Raising capital is challenging and can be a time consuming process. Information is limited but there is evidence that approximately 1 in 5 early stage companies seeking to raise capital are successful i.e. valuation is only one of the criteria for investors and a favourable valuation is unlikely to overcome shortcomings on other criteria.

Irrespective of whether you undertake a quantitative company specific valuation analysis I recommend working through the following steps with advisers to determine the valuation prior to commencing the capital raising process:

  1. Estimate capital requirement;
  2. Review market valuation data;
  3. Identify investor preferences; and
  4. Determine founders target long-term ownership interest.

[Read more…]

Xero valued at NZ$5.1 billion: 3.1 million customers by 2020?

Xero is the standout company on the NZX and on any measure has been a huge success. Listing seven years ago with a handful of customers and a market capitalisation of $60m Xero has grown to 211,000 customers around the world (30 September 2013), 584 staff (30 September 2013) and a market capitalistion of NZ$5.1 billion (18 February 2014). The exciting thing about Xero is that late last year it raised NZ$180m to fund the ongoing push into the US market. Growing at ~80% p.a. and with NZ$221m in cash at 31 December 2013 Xero is in prime position to become the global leader in online accounting solutions for SMEs.

Xero Share Price CHT 20140219

 

From an execution point of view Xero have been exceptional and to date investors have been rewarded handsomely for their faith in the company. Xero’s current valuation is a reflection of performance to date and the company’s potential but at a market capitalistion of $5.1 billion. Xero is trading at an enterprise value of approximately 70x the forecast NZ$71m revenue for the 2014 financial year.

Given Xero’s cash reserves and momentum it seems like only a matter of time before they reach 1 million customers but how many customers are required to support the current NZ$5.1 billion valuation?

[Read more…]

Indicative Economics of Solar PV in New Zealand

Update: The previous analysis has been updated to reflect the variable component of the residential tariff and a correction to the levelised cost calculation

Rooftop solar PV won’t make sense for everyone but even without a Government subsidy it represents an opportunity for some households to hedge against increasing electricity costs.

High-level Assumptions (Further analysis and refinement required)

  • Real, pre-tax hurdle rate range of 7.5% – 12.5%;
  • Retail prices reflect the variable component (i.e. excluding the fixed daily charge) of the residential tariff for selected regions from the powerswitch.org website. Selected retail prices include the prompt payment and direct debit discounts;
  • The analysis does not differentiate between generation to meet household demand and excess generation exported to the grid i.e. no consideration of feed-in tariff impact on economics;
  • The analysis does not attempt to reconcile the solar resource and potential load factors with the residential electricity price in different distribution areas;
  • The analysis assumes a 1% p.a. degradation in solar PV system efficiency; and
  • The analysis does not include maintenance and cleaning costs or replacement of parts such as the inverter.

Rooftop Solar PV New Zealand - Indicative Economics - 20140218

Note: The levelised cost approach alone is not suitable for a final investment decision and amongst other criteria individuals should also evaluate the NPV of any solar PV investment under consideration

How much is GeoOp worth? Four ways to value an early stage company

GeoOp is an early stage New Zealand company that provides mobile workforce job management solutions. Late last year the company listed on the NZAX following a $10m capital raising via a private share offering. GeoOp had 5,300 customers at 31 December 2013 representing approximately $600,000 of annualised revenue. GeoOp is targeting 50,000 customers in the medium term with aspirations to grow significantly beyond that.

In the three months since listing the GeoOp share price has increased by 175% to $2.75 (31 January 2014) representing a market capitalisation of $75m. As illustrated by the chart below GeoOp’s share price has been extremely volatile and shares have traded as high as $3.64 ($99m market capitalisation). This level of volatility is common for thinly traded stocks like GeoOp.

GeoOp Share Price Image 20140202

 

Given the early stage (sub $1m revenues) of GeoOp and the volatility of its share price I thought it would be interesting to undertake a valuation of GeoOp.

[Read more…]