Posts filed under ‘Valuations’
Bubble Watch – Part 2: Social Gaming
In my first bubble watch installment, I took a look at the cleantech industry. To continue our search for the latest bubble, we direct our attention towards the area of social gaming:
A search for “social gaming bubble” on Google returns a whopping 266,000 results. Move over, cleantech! The search in the news section shows an increase from 22 hits in 2009 to 87 in 2010. Getting closer. (more…)
Bubble Watch – Part 1: Cleantech
The end of the old year and the beginning of the new year always lends itself to a retrospective on the past and speculations on the future. And what could be more enticing to speculate on than the latest financial bubbles; a worthwhile topic since 1637, when some single tulip bulbs in Holland sold for more than 10 times the annual income of a skilled craftsman.
So here goes our list of contenders for 2011 bubbles: (more…)
Is Strong IPO Market Momentum Benefiting VC Backed Companies?
PwC just released its US IPO Watch which tracks IPO activity on US stock exchanges. According to PwC, “…the surge of activity in the fourth quarter of 2010 confirms the IPO market has recovered from the doldrums of 2008 and 2009.” (more…)
2010 Survey of Professional Services Firms in Silicon Valley
2010 Professional Services Survey Names Top Firms
A recent survey of the professional services landscape in Silicon Valley yielded some unique insights into the top names in professional services among VCs and CEOs of VC backed companies. The survey, completed and published by the Silicon Valley Research Group in San Jose and Seattle, was designed to identify trends and the leading brands across six professional services categories in Silicon Valley. (more…)
Does 409A kill the IPO Bump?
Several Silicon Valley bloggers have been pondering the question of whether 409A rules are leading to the end of the IPO Bump. The IPO Bump refers to the difference in the exercise price of stock option grants and the offering price of an IPO. In particular, several companies, such as Facebook, have had trades in privately held common stock reported on sites such as Sharespost.com. For instance as one blogger, Don Dodge, put it “The effect of the 409A requirement, and the new movement of private investors buying vested stock options from employees, is that pre-IPO valuations, and thus the employee stock option prices are very close to the expected IPO price. So, how will there be a big bump in the stock price at IPO?” See Will Facebook have an IPO Bounce? Has 409A Changed the Game? for his full posting.
ASC 718 (formerly FAS 123R) and IRC 409A Valuation Challenges Aren’t Just For Pre-IPO Companies
The attorneys at Latham & Watkins and the SEC Institute have written an interesting and detailed monograph on cheap stock valuation issues for companies that are preparing for an IPO: Cheap Stock: An IPO Survival Guide.
Here is a link to the document: cheap stock whitepaper
While the focus of the document is on SEC compliance challenges for pre-IPO companies, a key risk it identifies concerns tax compliance with IRC 409A. Additionally, in our view, the recommendations it puts forth also apply to companies contemplating an M&A exit. (more…)
Hidden In Plain Sight – How Differences in Preferred Equity Rights Impact the Value of a Company and its Common Shares
Part One – The Impact on Amounts Distributed Upon Exit
Many venture-capital backed technology companies raise capital in multiple rounds of preferred equity financings (Series A, Series B, Series C, etc). At each round, the lead investor estimates the value of the company and submits a term sheet that sets forth the proposed size, pricing, and terms of the new series of preferred stock.
Clearly, the company’s board of directors must evaluate whether the proposed transaction provides sufficient capital to fund the company’s business plan. The board will also consider the adequacy of the proposed price and the other terms and conditions.
Typically, the new investor quotes a post-money valuation (or pre-money valuation) which assumes that every share of equity is equal in value to the proposed price of the new preferred shares. However, as I have blogged before, this “VC valuation” may be very different than the “fair market value” estimated for 409A compliance purposes (or “fair value” as that term is used by the accounting profession). In particular, the VC valuation does not reflect the impact of differences in liquidation preferences and participation rights. (more…)
Demystifying Valuations for Venture Backed Companies
There are many occasions for a valuation in the life of a start-up company: preparing for the sought-after financing from a premier VC, the highly anticipated sale to a strategic partner at a hefty premium, or even pricing the initial public offering. (more…)
M&A Agony and Ecstasy for Early Stage Technology Companies: Purchase Price Allocation
When I speak with the CFOs of our clients about the acquisitions they are making, it reminds me of the title of that old 1965 Charlton Heston flick, The Agony and the Ecstasy .
Many of our clients are venture capital backed technology companies that have been growing successfully and have commenced making acquisitions. On the one hand, they feel the ecstasy of getting their deals done. On the other hand, they must confront the agony of fair value accounting. (more…)
Palm Reading: HP Extends the Life Line
On April 28, HP announced the $1.2 billion acquisition of Palm for $5.70 per share.
The acquisition will provide discussion fodder for months if not years to come, and we will see if HP can turn Palm into a serious competitor for the iPhones, Androids and Blackberries of the world.
In this post, I will stay clear of any strategic speculation, but rather focus on the process of the transaction. (more…)
