3ts venture partners

3TS Venture Partners


Valuation of the

New Economy Businesses

March 9, 2001


Contents

• What Is Valuation

• Variety of Business Cases

• Investor’s Perception

• Applicable Methodologies

• Lessons Learned

• Who We Are


What Is Valuation

• Goals of the Company

• Real finance - art or science?

• Useful tool

• Increases probability of success

• Allows you to make a right decision


Variety of Business Cases

• What is the value of your notebook?– for whom?– when?– where?– with what? – for what purpose?



• When it is needed?– purchases and sales of businesses– M&A processes– Shareholder value creation– Litigation– Settlements– Taxation– Estimation of intangible assets



• Ownership– certain rights and obligations attached to

the particular shareholding, participation, usage, lease, etc.

• Bases of valuation– owner value– market value– fair value



• Different New Economy entities

• Valuation techniques depend on the kind of business. The variety of internet applications make web-based businesses very different from each other

• New Economy business is every business, which is:– Internet Service Provider– Content Provider– Portal/vortal– B2B marketplace– E-tailer– etc.

Scope ofoperations

Kind ofbusiness


Investor’s Perception

What has happened since April 2000?• Nobody pays for words „internet strategy”• Deep analysis of the business models is a must• Valuations are much lower, even for developed businesses• Consolidation play is of major importance


Investor’s Perceptions

• Key questions:– Where are the revenues coming from?– What is the strategy?– What are the competitive advantages?– How big is the market?– What is the structure of the market?

...and...

– How are you going to achieve this?How are you going to achieve this?


Applicable Methodologies

• Based on multiples

• Discounted cash-flow (DCF)

DCF is more and more often used methodology as nobody is interested in users with no revenue generation potential



• Based on Multiples– Methods based on multiples derive the market value of the

shareholding from the comparison of the particular operational figures with the companies listed on the public markets or being targets on the M&A market

– In case of New Economy businesses these figures can be:• Profits

• Revenues

• User statistics (e.g. registered)

• Traffic generated (e.g page hits)



• Discounted cash-flow (DCF)– DCF derives the market value of the shareholding from the

forecasted cash flows generated by the Company

– DCF has three key elements:• Cash flow during the projected period

• Right discount rate

• Terminal Value, i.e. the value of the firm after the projected period



• Limitations to the methodologies

• Lack of comparable data

• Size differences among the sample companies

• Diversified stages of development and growth potentials

• Risk factors not satisfactory defined or valued

• Discount rates not specifically describing stages of development or scenarios

• Subjective evaluation used when defining risk factors that are already valued by the market

Multiples

DCF



• Which method is the right one?– There is no such!– You should use more than one, because:

• New Economy business are often loss making• DCF has high embedded risk of forecasting, therefore

discount rates should be significantly higher• Due to the sensitivity of forecasting excercise, you

should pay much attention to the scenario analysis• Multiples methods are used as a cross-check for other

methods


Lessons Learned

• Old good times are goneOld good times are gone– remember important investor’s questions

• The evidence is a mustThe evidence is a must– nobody will pay you for your business plan

without implementation

• There is no ideal valuation methodThere is no ideal valuation method– use as many as possible


Who We Are


Who is 3TS

• Created in 1999

• Venture Capital firm with $70 mm funding

• Technology Sector Focus

• Offices in Budapest, Prague, Warsaw

• Partners: 3i Group,3i Technologieholding, Sitra


Strategy

• Focused on high-tech, communications, software and internet-related industries

• EURO 0.5 - 5.0 million investments• Able to fund early stage to expansion phase • 2 - 4 year time investment horizon• Hands-on full support of the 3TS team and

partners until IPO or trade sale


3i Group

• 3i Group, EURO 1,100 million in technology investments in over 540 companies in year to 31 March 2000

• Increase of 60%• Total investments of EURO 2,100 million• Shareholders Funds EURO 9,000 million,

ROE 44%• More than 70 executives with expertise in

assessing technology businesses


3i Technologieholding

• Largest VC firm in Germany

• EURO 260 mm capital, approx 50 investments per year

• Acquired by 3i in January 2000

• IRR of +110%

• Investments - Intershop, Brokat, Ricardo.de, Poet Software, CPU


Sitra

• Finnish National Fund for Research & Development

• Invests in other specialized funds• Over 10 funds in Finland - 30% of all

invested capital, 23 funds in total• EURO 1,000 million under management• Gives access to funds and portfolio

companies


Recent Investments

• Open - CATV, data software/hardware• MobilAsk - WAP, wireless hosting solutions• E Group – Business Automation, E-solutions• Voxline – Mobil Internet Software• Paymentor – Online receivables collection• LaserBit – Laser wireless data transmission• CV-Online – Online career site


What Makes Us Different

• Technology Focus

• Regional Funds with Local Presence

• Access to 3i and Sitra expertise and portfolio companies

• Hands-on Approach

• Track Record in VC, Dedicated Team


3TS Warsaw

• Regus Business Centre, ul. Prusa 2• Hubert Stepniewicz, Investment Manager• Piotr Nocen, Investment Analyst

Tel: +48 22 657 04 75

Fax: +48 22 657 01 58

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