reasons.

>> Well, no. I I cap.

>> Oh, I'm gonna start. I'm gonna take the

screen first from you there, though. By

the way,

>> you do whatever you want.

>> Right. Hi, everybody.

Wow. When you guys add all your

fireflies, there's a lot of admitting

going on.

A lot of doorbells ringing.

>> Yeah, no kidding.

>> All right.

>> Uh Joe, if you can keep letting people

in, I'm going to try to find my screen

here. Thanks.

>> Hi, everybody.

If you don't have Um,

if you don't have your mute on, it would

be a good idea

uh to put on your mute. I am going to

Oh, I'm trying to share my screen. It's

not kind of working out here.

Give me a second, guys.

Maybe I spoke too soon, Brian. My uh

I'm having some technical issues with my

device today, so just hang in there.

>> No problem.

>> I think this will work.

Okay.

>> Yeah,

>> we got something.

>> I see.

>> All right. So, if you just come in and

you're not talking, just if you can use

mute. Hi everybody. Really great uh to

have you back here. Can everybody see my

screen? Okay. I'm just going to set up

the call and then um we're all here to

see Brian today, so I'm not going to

take uh too much time.

Just a little bit of housework. Again,

um these are the people that are funding

the program. So when you meet them on

the 25th, ask them what they do. Um and

why are we doing this? Uh just to set it

up, this is our third K labs and we've

requested

Brian, our expert in valuations to come

and talk to us because sometimes we see

great companies just not get their deal

done because there's something a little

bit off about their valuations or maybe

uh maybe further to that uh they just

don't seem comfortable in talking about

their um their methodology your why.

They've set certain valuations and this

is really good background to have when

you're negotiating with your lead as

well. I have um you know I I will say

that I have advised a founders sometimes

uh to negotiate with their lead when

they're not happy with the negotiation.

So if you have this background, it puts

you in a better position to have those

conversations

because yes, the lead is likely to be

instrumental to setting the terms and

the valuation and you as a CEO or the

founder also are part of that

conversation and it can be a

negotiation.

Uh so this is just some background. So

on the agenda, uh we're going to jump

right in with Brian. He's got a lot of

time. You can give him some feedback as

to

uh how much how much of him that you you

you want to get today and then we're

going to just go back to the program at

the end and we'll uh check in about your

assignments if you have any questions

and what's going to happen on the 25th.

uh one thing uh so you're going to lead

with this um confidence in validating

your valuation and we're going to touch

on deal terms a little bit. We can also

speak about that on the 25th. We got a

venture CFO going to be uh speaking and

then this is one thing I'd like you to

actually take action and work on right

now. If you haven't yet signed up to

your tough topics tiny tables, just take

a screenshot there, go in. All you got

to do is pick your four favorite

subjects and this will allow us, the

faster you get that done, the sooner we

can get on to matching. Thank you so

much. You've all done a really great job

on your investment readiness

submissions, and this really helps us

understand where you're at and what kind

of support we can provide you on the

25th. Anybody not got this link yet to

tough topics tiny tables?

Okay, put your hand up if you have

finished your tough topics tiny tables.

I can wait. Okay,

just grab the screenshot and and and

let's get that done. Thanks, guys. Um,

okay. So, I'm going to introduce you to

uh Brian and uh or maybe Brian wants to

introduce himself. How would you like to

do that, Brian?

>> Oh, I'm chill. I mean, angel investor

seven, eight years now. I love this. Um

background is in health tech. So, I I

think it's fair to say I have a bit of a

bias in that space, but that doesn't

mean I don't invest in other things. Um,

I love the whole process from meeting

founders to hearing your pitches,

evaluating your pitches, doing due

diligence, deep dives. I love the whole

process and um, you know, I'm always

learning as you'll hear about. So, uh,

it's just, uh, something I'm passionate

about and, uh, I give you all full props

for taking on the entrepreneurial

journey. It's never an easy one. Um, but

I admire you for having the fire, the

drive, the expertise to uh bring your

companies to fruition.

>> So that's me.

>> Awesome. And I think uh you you have a

question. We're not going to go around

the whole table. Uh the first uh we'll

take the first three or three or four

answers. So you can answer by putting up

your hand. And Brian, you had a nice

framing of the the question to get us

going.

>> Yeah. And Suzanne, if you can moderate

the questions, that would be great.

>> Absolutely.

>> Um, yeah. So, I, you know, I thought a

fun framing would be to have a couple of

people sort of shout out in order and

coherently. Uh, what are your biggest

worries when it comes to the valuation

process?

>> So, you just put your hand up. Use, uh,

Zoom to put your hand up and we'll go in

order.

>> And I need to share my screen while

we're doing this if somebody can let me.

Yeah, I

>> Here we go. We're good now. We're good.

>> Okay, Evan.

>> Hi, Brian. Uh, can you guys hear me?

Okay,

>> I sure can.

>> Perfect. So, what I was wondering, uh,

and I got some feedback on this, is that

we should aim for a certain amount of

dilution for a round so that we have

enough equity left on the board for

future rounds. And so, given that we

have, you know, we're we're aiming to

raise 350, we may increase that to five

or 600. Um, we have a valuation range.

How tight should that range be when

you're presenting it to investors so

that it looks like there's some thought

into it um without it just being like,

you know, we're worth anywhere from 2 to

20 million.

>> Yeah, I mean I I think that's that's a

good question. I I'm going to talk about

dilution and also divergence

um during the talk. Um

I I don't know that I can fix and say,

well, geez, you know, your range is off

the mark. It's more a that you've

thought about it and you can coherently

justify

why you're saying what you're saying. In

other words, Evan, what methodology have

you employed? Um, you know, things like

that. So, that's that's how I would um

that's how I would start is more

show me that you've thought about it.

Show me that you can justify this range.

And as I'm I'm not spoiler alert, I'm

already going to say it. These

negotiations should not be a zero some

thing. We we want to meet in the middle.

I'm not going to try and take your

firstborn, second born, and car.

>> Great.

>> Makes sense. Okay. Thanks, Brian.

>> Yep.

>> GarcA, thanks Evan.

Yeah, I think for me valuations when you

have so many stakeholders involved uh

VCs, angel groups, bringing everyone

together to define the terms um is also

something that I am working towards um

and probably needing some help to see

how we can find a lead investor who

could define the terms and then bring

everyone on boarded and everyone agrees

on something similar that also is

founder friendly and founder first

principles uh while fair to everyone.

>> Yeah. And I I think you you you've kind

of given the answer which is you want it

to be fair to everyone. You want

everyone to walk away from the table

feeling okay about it. You as a founder

don't want to give away your lifeblood.

And uh you know we as investors want to

see the potential for obviously lift in

subsequent funding rounds and

valuations. But as a founder too you

also don't want to overdilute yourself.

I want you engaged along the full

process. you dilute yourself out, you

become disinterested.

>> That's a really great point. I'm just

going to chime in. I'm going to let you

know just to double down on what Brian

is saying. I have been at the table when

the angels have said, "Hey, wait a

second. They're not asking for enough

like and said you need to ask for more

precisely for that reason because I

guess al also going back to what Evan

was saying, there's there's there's

consequences, right? There's it's it's

it's a path to capitalization. So, your

valuation is a is a living part of your

business. Connor, uh, jump in.

>> Hey, thanks. Um, this one's if if you

have a clear, uh, valuation at a future

milestone that you will work towards

getting, is it appropriate, maybe you'll

get on get touch on this, but is it

appropriate to kind of then assess what

your investors would expect on a return

for that, say, two-year gap to meeting

that milestone, which would would put

you at a more clear valuation. um with

that kind of working backwards based on

what you would expect them to be getting

from a return based on the risk type

thing. Uh because I especially in med

medtech you can expect that you know

it's easier to put a valuation on you

know regulatory milestone or a approval

milestone or something like that.

>> The short answer is absolutely yes.

In other words, you're right and we're

going to talk about this Connor. Um you

know you you you do want to be able to

work backwards. You know, look, when we

do this, and I don't want to jump way

ahead, but you know, we're harmonizing a

lot of elements here. Where you see

yourself going, future funding rounds,

dilution, um, you know, comparables,

etc., etc., etc. Um, so, you know, I I I

hope I'll bring this up during the talk.

Um, honestly, we could spend eight hours

doing this to be honest.

So, I'm going to try and distill it down

to its essence. Um, I also, uh, you

know, Suzanne will tell you this, but

we're going to send out the PDF on this

so you can have a look at it and play

with it. And, um, you know, I'm

obviously we'll answer some questions at

the end, too. So, maybe we should get

started. Hey, Suzanne, I think

can't hear you.

>> Sorry, we have one last hand up. Do you

want to get

>> Oh, sure. Yeah.

>> Do we want to take the last question

from Le?

>> Yeah, that's fine. Fire away.

>> Leing, you're the last question. Oh, hi

there. Thank you for taking my uh my

midterm. So, um I have a question

regarding on the evaluation especially

um how to get the accurate evaluation

number because currently we we have a

CFO a really good CFO uh who has been

doing our evaluation and using DCF

um based on the finan based on the

future projections in terms of sales.

However, that number is really really

high and we kind of afraid that uh when

investors sees it at the very beginning

for example the preede or C round they

going just going to oh wait hold a

second this is too high then I I can't

jump in that. So uh but we are confident

that our product is has a big potential.

So currently we are offering much much

much lower uh valuation. So I just want

to hear your thoughts on how to arrive

at the right uh evaluation on this.

>> Well that's a nice segue into what I'm

about to say for the next 60 minutes. So

>> okay

>> I mean the only question the only

observation I would make le ping is it's

interesting that at this stage you're

using a DCF model um because that really

as you're about to hear I mean a DCF

model is based on a fairly predictable

revenue stream and when you're doing DCF

you're extrapolating out four or five

years out based on uh you know a

reasonable assumption of revenue growth

and then extrapolating back using

interest rates to 0 point i.e. now. So

early stage to do that. I mean you know

we can talk about it but that's I I'll

I'll say that's interesting for the time

being and leave it at that. So let's get

started. Again I just want to welcome

everybody. Um I'll do my my absolute

bestest as we say to uh make this

interesting for you. And um you know,

we're we're really at the end of the

day, the Capital Angel Network is all

about trying to have as many of you

succeed as possible. And we we try and

do this through providing, you know,

tons of information. And um what I'm

going to do with this talk is is I guess

the best way to put this is try and help

create a framework for you to assist in

the valuation of an early stage venture.

So, as I learned back in my science

days, the first thing we should be doing

is issuing a disclaimer.

So, you know, like everyone else, I have

made a ton of mistakes. I continue to do

so and I, you know, very honestly still

have a lot to learn about this whole

process. What I'm sharing with you is

really born from the pain of experience

and I've done a fair bit of research

into the topic as well. So I think

rather than calling me an expert, let's

just say that I'm I'm curious about the

whole process.

Okay. So

this is sort of the the the structure

I'm going to follow. I I will respect

your time. As I said, this is a big

topic, but I want to cover as much as I

can to make this worth your time. Um so

I'm going to start by introducing some

overarching and recurrent themes. I'll

use kind of a fun example from the art

world. Um I I'm going to then sort of

follow this up with some general

considerations from both your

perspective as founders and my

perspective or our perspective as

investors. Um I have done quite a bit of

research on the sort of the state of

angel valuations in North America. Um,

and then of course we'll dive into the

various methodologies we can use to try

and I'm going to emphasize the word try

um to calculate a company's value. Um,

we'll think a little bit about where we

are macroeconomically because obviously

that influences to a certain extent how

much disposable capital there is. Um, I

will review the toolkit that we can use

to maximize investments and then we will

talk about agreements types and terms. I

will say and Suzanne correct me if I'm

wrong. I think it's Sean um is going to

give a pretty granular talk on um you

know framing your investment strategy

terms as well. So uh

>> can I just can I just jump in there?

>> Yeah, please do.

>> Yeah. So, so Sean uh from Dentons is

going to come and he is he is driving a

tough topic tiny table. So it's called

uh deal dock. So he's going to be

talking about uh papering the deal. And

we also have Carl that's going to be

coming and he's talking more generally

about uh all those CFO things that you

need to think about. But both of them

are available for tough topics, tiny t

tables, and for one-on-one sessions if

you want to chat with them. So the point

is is that whatever it is that is your

pressing burning need, there's somebody

in the room to help you with it on the

25th. Thanks, Brian.

>> Yeah. No, and kudos to you Suzanne and

Joseph for putting this all together.

It's it's a a massive chore and well

done. So um I don't know how many of you

are interested in art but Jean

Michichelle Basuat he was a young artist

from Brooklyn who was he was really a

savant he he started reading around the

age of four um and in the early 20s

people were starting to pay attention to

his artwork. I'm not quite sure why but

this piece was produced um when he was

22 and it sold for the you know

relatively poulry sum of $19,000

US. Now, to me, this looks like, you

know, the renderings of an angry

demon-possessed 10-year-old in art class

who probably needed some medication. But

anyway, Basat died in 1988 of a heroin

overdose, age 27. So, obviously, he did

have some personal demons. The point of

this share is that in 2017,

this same artwork sold for $110.5

million,

which represents a cager compound annual

growth rate of $125%.

So, you know, as they say, beauty is in

the eye of the beholder. An object's

value can be subjective. And this is a

point I'm going to make for early stage

companies as well. I guess the other

point is probably you should all have

gone into art as opposed to early stage

company founding but anyway

um okay

so you know let's just start high level

and then drill down early stage

companies you seeking angel funding you

have certain characteristics

that make valuation calculations

challenging and these challenges exist

around uh market adoption you know

Everybody can get early market adoption,

but how durable is it and to what extent

will it grow? You know, how much how

able are you to retain your customers?

You'll have variable capex challenges,

capital spending challenges, and of

course, we've already talked about it,

albeit briefly. You know, there's it's

pretty hard to predict the future. So,

bear these things in mind as we go

through various valuation methodologies.

Now you know as a result of that it's

incumbent upon all of you to realize

that

early stage investing involves

uncertainty to a certain degree bias

framing bias cognitive biases and

there's also just noise

from what's happening macroeconomically

noise from what's going on in the VC

world um so you know at the end of the A

often times the buy decision, and I know

this may sound counterintuitive based on

what I'm about to talk about, but it

often times becomes a leap of faith.

Full stop. And it's really important to

know that. And I have found all too

painfully, this is my confession, that

it can be hard to get it right.

Okay, first principles.

Why do we even use evaluation? Why

bother? So, you know, your valuation is

really a numerical representation

of perceived worth. Now, it it it's a

cornerstone of entrepreneurship. It is

really a cornerstone of what you're

doing. It's also a reflection of your

potential future trajectory. Now, it can

be, as you're going to hear, guided by a

lot of things like market trends, you

know, or heat if you use VC vernacular.

It can be guided by metrics, qualitative

assessions, qualitative assessments,

excuse me.

And valuation is really the bedrock upon

which future fundraising, ownership

stakes, we've already heard that,

strategic choices, and investor

relationships are built. And so, you

know, as you embark on this journey,

there's a myriad of considerations that

come into play. some of which are

tangible and some of which are

intangible.

So here in lies the challenge you know

and again we've already talked about

this briefly. You want to find a balance

between yourselves and us and

entrepreneurs and also we investors must

understand the critical aspects of

valuation

for your type of venture. If we get

aligned expectations,

this will understand and foster positive

future relationships which are

productive.

End of the day ultimately we seek

evaluation for the purpose of allocating

the future value between yourselves and

us. So just want to set the highle

picture for us. Now

again, you know, you have a certain

perspective on why your company may be

worth X

and your perspectives are entirely

legitimate. Now, I've depicted some of

them in this slide as you can see. Most

importantly, you all have brilliant

ideas. You've obviously are putting a

heck of a lot of time, effort,

perspiration into the process. I'm sure

you're all fiscally disciplined as

Connor already indicated. You're

thinking about your runway down the line

and you're also trying to balance how

much dilution you want versus

funds for the next round. So, these are

all the things going through your heads

when you want to think about it.

In contrast, there's us. This looks

strangely like Kevin Olir, otherwise

known as Mr. Wonderful. um I don't think

it is a caricature of him but anyway you

know on the other side we angels have

our own goals in fixing valuation now

we don't always take the lead at the

Capital Angel network sometimes we do

oftenimes we're going to ask you well do

you have a lead and in that case maybe

the valuation's already been been set um

and and you know if that's the case then

it sometimes boils down to the fact of

whether or not we're comfortable with

the numbers that the lead is that and on

the other hand as I I think we've heard

already there can be a mutual

willingness to engage in negotiations

around valuation and these negotiations

need not be tense and stressful they can

be very amicable when one is cognizant

of all the different issues at play but

you know what goes through our minds

well you know we want to make money

that's why we're doing it one reason why

we're doing it I should say correctly We

obviously want to try and get a

reasonable stake in your company. Um,

you know, when we set a valuation, that

valuation, you know, should put some

degree of pressure on you to deliver

returns. And guess what? As we often

find as angels, we have to think about

are we going to be asked to put another

check in in two years, three years,

bridge rounds, all these things happen

and we have to think about that going

forward.

Now, I hate busy slides, so just ignore

this. This will be in the PDF. The point

here

is that you want to try and identify if

you're even at the stage where you

should be asking for vin angel funds as

opposed to talking to your family and

friends. And the the great thing about

this

viral capital, pardon me, the village

capital sort of pathway is it really

incorporates team problem vision. You

can read it for yourselves here. things

to think about

where you are in your angel journey,

startup journey, and should you be going

to angels? Are you at the appropriate

time? This will be in the PDF, so I'm

not going to belabor this. It's

obviously way too busy.

Okay, so here we go. Now we get into the

meat and potatoes of things. There are

numerous approaches that have been

published or written about when we try

and value an angel stage company. Now,

in and of itself, the fact that there

are so many options, this speaks to the

challenges inherent in the process and

the obvious lack of consensus.

This is also consistent with there being

so many unknowns associated with early

stage companies. Now, I've tried to

capture pretty much everything that's

been published out there about valuation

methodologies

and I will go through them with you. Now

the important thing to understand um

with this slide is that you can see that

early on in other words seed early stage

maybe bridge

most of the valuation methodologies are

to a greater or lesser degree

subjective. So that's why, you know,

when Lee Ping talked about um, you know,

using a DCF model, I don't know anything

about your business, so I'm not I don't

want to be critical, but you really need

some fairly robust numbers to be taking

a DCF approach, discounted cash flow

approach at an early stage. But

nonetheless, it it it may work in

certain circumstances.

Okay, there are subjective methods. This

is literally

there's nothing quantitative about this

but you know Sean Ellis who's a very

interesting sort of business writer has

asked existing users users of a product

how they feel if that product were taken

away from them. Would they be happy or

unhappy? And this is extraordinarily

squishy and subjective but it's a

starting point. You know how many people

are you solving for? How big's your Tam

Sam? Um, you know, and again, you know,

just a very simple question. How would

your customers feel if you pulled that

product away from them? This really is

very subjective and not a method that

anyone uses to any great degree.

Now, um, the big thing to think about is

where you are. And this goes back to

that village capital

methodology I showed you. Where are you?

And don't worry about the numbers that

you see here because this is an older

slide. The point being is that the

further you are along in the path,

the more of a valuation you can

reasonably ask for. and don't take

anything away beyond that.

Now, let's get into it. The Burkus

method is a pretty old method. Um, you

you can see that what it really does is

it assigns a number or a financial

valuation to each of what are deemed to

be the four major elements of risk faced

by all young companies. And of course

you you have to credit yourselves the

entrepreneur with some basic value for

the quality and potential of the idea.

Um beyond that you know you want to know

does this idea make sense? Where are you

with respect to product prototyping?

What's the team like

execution risk? So on and so forth. This

is a very simplistic model. The reason I

include it is because as you will see

subsequent valuation methodologies have

been built on this. Now you know you can

see that these numbers may add up to

whatever and let's let's show you what

that looks like. But realistically,

I don't think you really want to be

using this because it's not particularly

robust and it's it's a fairly simplistic

evaluation and clearly we can substitute

higher numbers for 2025. But I include

it because the subsequent techniques I'm

going to show you are built upon this

type of structure. So the next technique

is called a risk factor summation method

and it simply takes a similar pre- money

starting point and it adds a longer list

of factors and allows you to score each

factor on a scale of you know plus or

minus 500k. Now you know you could you

could go and go plus or minus 750K. It

doesn't really matter. The risk factor

summation is is certainly an improvement

over what I I showed you in both

sophistication and granularity, but

honestly it it still feels a bit

arbitrary given you have to pick a

starting point, decide how much to add

for each factor.

The process looks something like that.

And you can see here that what's

interesting is that all the different

factors are basically being given an

equal weight.

And you know, you can see that a lot

more risk factors are now being included

than were for example with the original

Burkus method. But we can we can take

this a step further

and do something called the scorecard

valuation method. And this was developed

by an investor named Bill Payne who set

out to improve things even more. And and

he called it the scorecard for I think

fairly obvious reasons. And what he

basically asked was what if we looked at

more factors and we give each one a

relative waiting to reflect its

importance and a rating to score how

well the company does on that particular

factor.

The scorecard valuation method is one

that I think a lot of us angels actually

look at.

In this method, you know, your startup

to a certain extent is compared with

other similar funded startups. And you

can see that this model compares

companies on the basis of several

factors like team, stage, market,

region. And for example, you can see

that a very high priority is being

assigned to the team. And I think in in

my mind that's something that's super

important because you know you make or

break your success to a large extent.

So um let's look at this in a little

more detail. So ABC company so its base

valuation is derived by finding a median

range in comparable businesses and

geographies. So North America, US to

determine the pre- money valuation of

pre-revenue businesses. The next step

involves comparing the target company

using the scorecard valuation method to

these comparable deals. So let's assume

for example that ABC has a very large

market opportunity,

we'll give that 140%.

Technology, maybe it's average, so we'll

give that 100%.

When we take a look at, you know, the

strength of the market competition, uh,

maybe their moes not so good. And in

that case, we would give them an 80%, so

slightly below par. And then we look at

other factors that may or go above or

beyond the 100%.

At the end of the day, you multiply the

median of the pre money valuation by the

sum of the factors. So for example, you

can see that you know 20%

times what we feel is a great market

size, a great s not Sam, a great s um

and also wow what an amazing team. So we

take those multiply them these become

the factors. Then what we do is we add

up the factors and we multiply that

factor by what we assume is to be the

base valuation of comparables.

Okay, this will be in the PDF. You can

play with it. You know, again, uh, you

know, it's obviously subjective, but it

is a certainly more rigorous methodology

compared to some of the earlier things

that I've shown you.

Now, things get interesting from here.

Um, Sarafh is is sort of a group of

angels who've developed something called

the Sarafh method. Um, I don't want to

get too far in the weeds on this, but

basically it's yet another variation of

these approaches and and what Sarafh

does is they use a whole whackload of

very detailed worksheets

on, you know, they cover a lot of

issues. So, they look at exit

practicalities, uh, financing

requirements, um, fundraising,

you know, all kinds of different things.

I think they've got about eight sheets

and you can look this up by the way. Um

the nuance with the Sarath method, and

this is what makes it look intriguing,

is that

it looks at the concept of percentage

ownership

as a way of optimizing valuation. And

you'll see how this plays out in a

second. So, um here's an example of one

of the worksheets. And you know what

you're doing with the worksheet in this

one, this worksheet one is all about

exit realities.

What you're doing is trying to ballpark

the kind of exit that might be possible.

And then you use that to create the

first set of adjustments to the starting

valuation. And this is, as I said, but

one of many tables that Sarafh uses. And

you know as you can see um there's a

downward adjustment on the percentage

ownership required

given more favorable circumstances

and then the cumulative increase or

decrease is ultimately adjusted on a

sliding scale. Now I'm not going to show

you all the worksheets and show you how

you know we work through it. It's too

much for this. But I just want to

introduce you to the technique. So

basically here's an example where we

look at company X

and we decide that the required

percentage ownership should be 20%.

That's by the way from the perspective

of the investor.

So you can see here where you want to

put the round and again these are old

numbers. Don't fuss about the numbers.

But the point being is that by

increasing the pre- money val you've got

to watch as you can see to what happens

to the percent ownership. So, as we

talked about briefly in the intro, you

know, the adjustments you make to your

pre- money and and obviously therefore

your post money can affect the extent to

which certain parties, you and us, own

shares in the company or own a

percentage of the company is probably a

better way of of putting it.

Now,

there can also be scenarios

um for example, if I found a company

that raised a few more concerns,

um the worksheets might total out to an

increase percentage the amount that I

want to own with a resulting decrease

in the valuation that investors are

willing to pay. And you can see that

depicted here in this slide.

So, we're lowering the valuation because

we have some concerns. Maybe your market

isn't as robust as we thought.

Maybe there's some concerns about the

team that are more subjective. We factor

those things in. Pre- money goes down,

but then what are we willing to pay

based on percentage ownership? And

again, I don't want to get bogged down

into the weeds on this, but these are

the kind of things that you need to work

through internally when you think about

that valuation process. And then again,

just by way of being redundant, you

know, here's where we get a higher

valuation where we see that, you know,

everything's clicking, your exit reality

is realistic, your financing

requirements seem reasonable, and the

deal environment is a good one, your

timing is good, and so forth. So, that's

the Saraf method. I actually like that

as a method. Now, um,

we're we're moving higher up the stage

here in terms of where you are in the

company's growth, product, market fit,

customer traction, etc., etc. Um, you

you can do um something later on called

the comparable transactions method. It's

also known as the guideline transactions

method. Excuse me. It utilizes

information on transactions involving

assets that are the same or similar to

your business. And the process begins by

basically you go on Pitchbook or

wherever and you look for other

transactions that have happened ideally

of course in in recent history and in

the same industry. And once you've done

that initial screen and the data is

transferred onto Excel and then you can

start filtering out the transactions

that maybe aren't the best fit for you.

And um you know this is where you want

an analyst to really scrub the

transactions

you know that really

make sure or really ensure I should say

that the business you're looking at

really fits and compares to yours. And

then of course what you do is you apply

the valuation multiples that they got on

a recent precedent transaction and you

apply them to your company. Now you know

again this is still with pre-revenue

companies or early stage revenue

companies but you know a precedent

transaction is something that you could

bring into play at an earlier stage for

sure.

Now now we get into VC methodology. Um,

this gets a little bit heavy, but I, you

know, I'll I'll talk about it because,

you know, you need to know about it.

This is what VCs tend to use. And this

is, you're further along here because

now you're looking for VC money. So, you

could be into a series A, um, a bigger

bridge where you've made a past a lot of

your KPIs, your milestones. um the the

VC methodology like the DCF, the

discounted cash flow methodology, it's

all about calculating a future state and

then working backwards to the present.

Suffice it to say, predicting the future

still is hard to do, at least in my

books. Okay, but you can see briefly

what happens here. We start with post,

we work with pre, we work backwards to

figure out what kind of an investment we

want to see.

So here's an example. I I'll try and be

brief, which is usually hard for me. Um

but anyways, here's an example where

let's say a company needs a million. We

assume it's going to exit in five years,

maybe an M&A or a buyout year five.

Let's further it'll assume it will have

a revenue of 20 million in the fifth

year. And if we assume that it will have

a net profit of 10% or 2 million which

will yield it a somewhat economically

standard PE ratio of 15X. I don't know

if I've seen a PE ratio of 15X recently

but basically that means that the

company would be worth 30 million on

exit. So that's a PE ratio of 15 times 2

million in earnings if investors want a

cash onash return of 10x their money.

And again, dilution has to factor into

here. Then the value of their stake in

the company must be at 10 must be 10

million at exit. So a million times 10.

And if they need 10 million out of 30

million, that's 1/3. So they need to own

33% of the company. Therefore, if

they're putting in 1 million and need to

own a third, then the pre- money must be

set at two. And you know, this is a

whole talk unto itself. Connor, this I

think sort of talks a little bit about

what you asked me. Um, but you know, I'm

giving you this so that you know about

it and you can obviously do research

about it. Um, it it does have some

utility when your revenue stream I'll

say is a little more mature.

So you we've already talked a little bit

about DCF. So basically

you're calculating

the value today of projected cash flows

and terminal value.

So hopefully you can see in this slide

you you project out your cash flows for

four or five years. That can be tough to

do. You pick a terminal cash flow and

then what you do is you discount it

back. So the discount rate

reflects the weighted average risk

adjusted return and terminal value based

on what we hope is a sustainable growth

rate. So in this example CF is the

expected cash flow in year T year 1 2 or

three and R is the risk adjusted

required rate of return for investing in

that asset and then T is the life cycle

of the asset. You exit in five or 10

years. Now, as I said earlier, you know,

startups rarely have sufficient

financials to make this estimation work

because this analysis relies on

predictable cash flows and some sense of

earnings history.

So, to do a DCF at year 1, it's a little

tough. Now, here's a really important

thing, and I'll talk about it in a

minute. Everybody remembers zerp zero

interest rate time. Okay, zero interest

rate potential.

The lower the interest rate,

the higher the net present value of the

company. That's why when interest rates

were zero, you had so many startups with

absolutely

insane valuations.

And you know, we saw that in the public

markets back in, you know, the co zero

interest rate period of time. That is no

longer the case. Suffice to say.

Um, last but not least, there's the

first Chicago method. I include it

because I want to be thorough, but very

briefly, basically what you do is you

run through a variety of DCF scenarios.

So, you know, maybe you do an

very conservative estimation of DCF, you

do a moderate estimation, and then you

do a pie in the sky, and you assign a

certain probability to each. As you can

see in this example, the mid-range was

assigned a probability of 60%. And then

you just average out the valuation from

there and tabulate a final score. So,

that's that's just another mathy way of

of doing things.

AI. I mean, what would a talk be without

including AI? Um, it's starting. I

confess I don't know a lot about it yet.

Um, I'll share something with you a bit

later about AI that you're going to get

a kick out of. Um, right now there are a

lot of players working on AI based

valuation tools. Um, you know, as

angels, it's a little bit hard to pick a

winner in this space because so much of

it is still, I hate to say it, a a black

box. And I think that, you know, we're

not really there yet because um, you

know, you you you can't replace, at

least in my mind right now, professional

judgment. And um you know

ultimately you need to have valuations

certainly at later stage that are really

more compliant with conventional and

acceptable tools.

Okay. So that's sort of a general um

framework for all the different

techniques you can use. As I say, I'll

share the uh PDF and by all means, you

know, do your own deep dives on each one

of these. I do think, you know, from a

simplistic level, you know, if you can

maybe quote a scorecard and a few other

methodologies,

um that certainly shows us the angels

that you know, you've really thought

about it. Okay, so moving along. Um

let's just look at the market markets in

Oh, Connor. Yeah, thanks.

>> Yeah. Um, we we'll do the questions in

the chat at the end. Just

>> I can wait.

>> Yeah, sorry guys. Um, so, um, you know,

let's quickly look at the markets in

general. I mean, obviously the last five

years have been a bit of a roller

coaster for startup valuations. Um, you

know, the peak of the Zer zero interest

rate bubble was probably 21. Since then,

the market has undergone a pretty

significant correction with VA

valuations falling back to preboom

levels while dilution still remains high

with the exception

of AI based companies.

So, you know, that said, um, certainly

in the US and and and more and maybe a

little bit less so in Canada, valuations

in 2024 did spike due to AI

frenzy and mega funds were moving into

earlier rounds. They did push up prices.

Again, this is for AI, especially for,

you know, very popular syndicated deals

and buzzy, you know, AI startups. You

all know what's happening with OpenAI,

Anthropic, etc., etc.

But outside of the headline deals, um,

you know, a lot of our angels are

reporting investing at sort of, you

know, lower entry points, sometimes half

the platform, um, you know, quoted

averages. And

we'll talk about this again down the

line, but you know investors are saying

that at the end of the day, initial

product market fit, founder strength,

market size, you know, approvable and

realistic s um team experience. Those

are your crucial valuation um drivers.

Even though sometimes market heat will

um overshadow fundamentals in the race

for the deal. Um you know

the the vagaries of the the tariff plans

the evershifting nature of these um has

has to some extent affected capital

deployment due to the uncertainty. Um

this is certainly uh notable in you know

the hardware space um manufacturing and

retail uh due to you know sourcing risks

um where you getting your product from

is there going to be a tariff you know

for smaller consumerbased things the

elimination of the day minimous credit

you know where anything u below 800 just

flowed across the border that's not

happening now so uh those kinds of

spaces

have been hit particularly

um in Canada you know the deal count

fell about 50% year-over-year

and um

US investors this is interesting

accounted for about 54% of um funding

contrasted with about 31%

in uh 31% of Canadians excuse me in the

first half of 2025. Um, you you will be

heartened. I'm wonder hoping you're all

from Ontario, but you Ontario tends to

lead Canadian VC funding with 46% of

Canadawide funding. So, that's hopefully

good news for you. Um, industry shifts.

I'm going to speed it up here a bit, but

basically um you know energy climate

healthcare farmer are the tend to be the

most capital intensive with high average

raises and then of course

correspondingly high dilution because

you're you know you're you're doing

things at a higher valuation. Um and

obviously this reflects investor

willingness to fund long-term innovation

in exchange for greater ownership. Um

finance is leading in pre- money

valuation at around 9.1 and there's

generally moderate dilution in that

sector. Um this will be in the handout

so I'm going to boogie on with this. Um

founders you guys um

this is a big thing now. Um, you know,

the slide shows that repeat

founders, repeat entrepreneurs tend to

get a little bit more funding at a

little bit higher level. However,

do not be discouraged. This is a great

book. I would recommend it to you all.

It's called Superfounders.

And very briefly um what he does is he

debunks a lot of the myths that we as

angels have about whom to fund. And so

the ideas that every founder has to come

from MIT, Harvard or Stanford, not true.

The founder that uh you know um a

founder who is solo versus a team is a

greater risk and on and on and on. Um, I

won't go into the details here, but I I

do suggest you read it mainly so you can

pump up yourselves to us and debunk any

myths we may have about the type of

founders that we may want to fund. Okay,

so let's get specific. Um, you know,

generally angel investments

are landing within this target zone. I

am going to submit to you that this is a

general valuation range that we've

experienced at CAN over the past few

years. Um it's not a hard and fast. Now

to some extent

this range is based on what I would say

this is my bias are the relatively

conservative estimations

that we see from target companies of

both your SAM your strategic addressable

and your SOM strategic obtainable

markets.

And I I think I hope nobody gets

offended by this, but I I I think what

we see or what we're seeing is a large a

lot of companies that are iter iterative

there potentially a variation on a theme

as opposed to being worldchanging.

Now, that said, um I'm a syndicated

investor in a company that is getting

ready to do a $1 billion seed raise.

They are not AI. Their post money, they

have no revenue. Their post money is $5

billion. This is through a VU fund, but

they have an a realistic estimation of

the strategic um obtainable market of

anywhere from 250 to 400 billion. So in

that case,

you can justify the 1 billion early

stage valuation. Now, how about just

debunking everything I said? So to a a a

certain extent

it depends a lot on what you can show to

us about your market particularly your

song. Anyway I I'll leave it at that for

now but that's the range we generally

see. Okay.

So let's start putting this together. I

don't want to ramble too much on too

much longer on all this. So I I want to

sort of set the table with you because

as I think you've already heard and

hopefully perceived understood you know

there are a number of factors that we

have to be cognizant of as we go and

think about the valuation and that's the

extent to which we want to be diluted

the extent to which we need funds now

and in the future. you know what are the

risks of going too high with our

valuation

going too low and then of course what

agreement do we put in front of the

investor

so

beyond our own expectations I I just

want to briefly review the relative pros

and cons of each valuation scenario and

you can see them depicted here

um in the high valuation scenario.

The pressure to meet a lofty valuation

can result in rushed decisionmaking,

misallocated resource, and it can

compromise, excuse me, your long-term

strategic goals.

Moreover, it can hinder subsequent

fundraising

if you struggle to meet the expectations

associated with valuation. Likewise, you

want to avoid the risk of a down round

where obviously, you know, a VC comes in

and chops your price expectations down.

And, you know, obviously we we see the

same thing in the real estate market.

somebody lists their house and all of a

sudden, you know, we go on and we see

that the price has dropped. Well, what

do we do? We sit there and we wait

because it's a signal that the pricing

was mispriced.

Now, conversely,

um, you know, a low valuation may

attract more investment because we

investors go, "Oh, well, I'm I'm going

in at four, but I'm going to get a

lift." You have to be careful, though,

that it doesn't overly dilute you.

We angels

want to be aligned with you. So don't

sell out the family farm just so you

think you can please us. And of course

if it's so low

you you know you may be sending a

negative signal to us about your

company. Okay. So

factors to consider about going too high

too low very crucial.

Okay

the cap table. This gets overlooked

way way too often and it is very poorly

understood and I don't have the time to

go through it with you now. All I'm

going to say is

you need to pay attention to your cap

table because I would compare this to

looking under the hood of a used car or

a new car for that matter. And the cap

table is an actual table that takes all

the shareholders in the business,

depicts who owns what, how much each one

owns, and what is the value assigned to

the stock or the percentage of the

company they do they do own. And in this

example, you know, you can see all the

key elements of the table, the post

money valuation, price per share,

shareholders, etc., etc. And remember

that the percentage of the company you

own will have an impact on the final

multiple that your investment receives.

Now um we talked about it but I want you

to to understand the process of dilution

and

investors

us have to think about something we call

divergence. And you know this is sort of

a poorly understood calm you know

concept I guess I should say um because

this is the difference between the

growth rate of the company your

company's valuation and the valuations

of the shares investors receive due to

subsequent dilution.

So

very simply put,

I get in early, your company goes up

10x, but guess what? Because of

dilution,

my shares maybe only go up 4x. So in

this example that I've shown you here um

the increased valuation of 15x in the

value of your company

shares were two they've increased to six

that's only

3x.

So 15 times divided by the share price

increase of 3x results in it's a just a

term we use. It's called a divergence of

5x.

Okay. So again, it's it's understanding

dilution from your perspective as a

founder, but also ours as investors.

Um, don't get too fussed about this

slide. Basically, what I want you to

understand is that obviously, you know,

we're in this game to get some money, to

make some money. Generally, we're

looking to return a 5 to 10x return on

investment, a cash on cash return on

investment in roughly four to if we're,

you know, if we have the patience of uh

job to maybe 9 years. And this yields an

internal rate of return around 25 to

75%. Um, you know, I'll I'll let you

have a look at this on your own down the

line, but again, just something to think

about. So, for the sake of expediency,

let's move on. Um, you know, now you've

got your valuation thesis. Um, you know,

you want to frame the valuation

around an agreement that will derive

receive a positive outcome that's going

to mitigate downside risk, i.e. losing

money and preserve as reasonable an

equity state for us and a lack of

dilution for you. And again, I I cannot

do justice to everything involved here,

but as I said at the onset, this

negotiation between you and us should

not be a zero someum process. And I

believe really strongly that you know we

investors,

you founders should really try and find

middle ground that respects all

counterparties. That way everyone's

walking away feeling like they've done

well. So again, for the sake of time,

I'll I'll just go through a couple of

the key items. Things like price

protection, anti-dilution, liquidation

rights, board seat. I can't go through

this. This is like two hours. Um but you

know if you want to learn more about it

uh definitely Sean is very good in

helping you in this regard. Okay. All

all along we've used the term valuation.

Valuation is not the same as valuation

cap. It helps you derive a valuation cap

but strictly speaking

the terms are not synonymous. They're

similar, but they're not the same.

So,

typically we reserve a valuation for

equity investments. That's where we're

getting a precise dollar amount

representing the current value of the

company. You're basically offering us

equity.

Don't see this a ton at early stages.

It's not to say it can't happen.

The valuation cap on the other hand is a

term that we see used more commonly in

particular. It's a standard term of

convertible notes. We see it in safes.

It's not a valuation of the company

based on your current projections or

assets. It's more an estimation of the

company value between the issue date and

the next priced round.

So, a valuation cap

entitles the note holders to convert the

outstanding balance on the note into

shares of a stock at typically the lower

of the valuation cap or the price per

share in a qualified financing or if

there's a discount on the note than the

discounted price per share.

Now it's it's intended to ensure that

investor doesn't us me does not miss out

on significant appreciation of a company

between the time of the sale of the

convertible notes and the qualified

financing. So that's where you can still

use your calculations to help derive a

valuation cap. And I think one of the

earlier questions is what's the range?

Well, you know, we'll talk about this,

but generally the conversion discounts

we're seeing are anywhere from 15 I

maybe 10, but more commonly 15 to 20% as

a rule. All right, let's briefly talk

about the agreement types. I'll talk

about three. There's also an agreement

called a KISS, which is keep it at

simple security. It's a little bit of a

variant on a safe, but I'm not going to

talk about it today cuz I'm going to

start to bore you all to tears. Um, so

my intention is just to give you sort of

a highlevel review of these agreement

types and obviously to some extent you

know the agreement that we sign will

affect the potential multiple. So

think of equity as a degree of residual

ownership in a firm or an asset after

subtracting all the debts associated

with that asset. Equity represents our

the shareholders stake in the company

your the founder stake in the company

identified on the balance sheet. Again,

this is pretty hard to ascertain in the

early days. And as I alluded to,

generally we don't see a lot of equity

raises in the early days.

This on the other hand, we do see. So,

think of a convertible note almost as a

convertible loan. And really what we're

doing instead of buying shares in you,

we're giving you money on a loan

with some specified interest rate and we

are you sorry are promising that during

the next round of funding funding the

loan will convert into shares as if

money had been put into that second

round. Now I there's look there's more

legal work involved in a convertible

note. That is why safes were developed.

As you probably know that was a a Y

combinator sort of invention. Um for

convertibles

um we will see maturities I want to say

these days anytime between 24 and 36

months we will generally see uh

conversion discounts in the range of

20%.

Interest rates it's a tough call 6 to

8%.

One of the nice things about

convertibles, I hate to say this, but

it's true, is that if you fail as an

investor, we can get credit for the

potential owned or owed, excuse me, the

potential owed interest as well as the

principal amount put forward. So, it's

tax advantaged

if you fail. But fail is a four-letter

word. We're not going to think about

that today.

All right. the safe. Um, with apologies

to Clint Eastwood, whom I believe passed

away recently, um, safes are really an

entity uh, unto themselves. As I said,

um, they're a Y combinator

idea. Now,

there's good, there's bad, there's ugly

with safes.

Safes typically have no maturity date.

So they will sit on a company's books

conceivably

forever

without any mechanism requiring you the

company to do anything about them if

there is not a qualified financing or a

sale event. Um, you know, the last

vestage for me as a safe investor is a

company wind up or liquidation,

you know, where maybe we get original uh

investment back or um, you know, that

would only happen if the company has

enough assets to liquidate and those

assets are not eaten up by

secured or even unsecured creditors. Um,

I'll be honest with you, as I always try

and be. Um, safe investors do not have

any of the rights that shareholders

would have or any really strong claim

for breach of contract if you did

something that was egregious and very

damaging to the company or something

happened that blew the company up. It's

it's kind of a I it's a promise and as I

say to people it exists in the never

neverland between debt and equity. It's

not really on that hierarchal structure

at all. So I mean do have I signed

safes? Yes. Um do I like to sign them?

Not so much. Um a lot of my uh

colleagues do. So don't you know be

discouraged if you're thinking about

doing a safe. Um, I understand why

they're done, but I I just think you

need to be crystal clear on the issues

associated with them. And I will tell

you very honestly, I've been privy to an

investment I made eight years ago. It

was a safe and subsequent to that there

have been another, I confess to say five

funding rounds subsequently with

different valuation caps, but all on

safes. Guess what? That cap table is an

absolute horrenandoma. It is a mess. And

you know, we've had discussions with the

founder and we're saying, look, you have

to clean up this cap table because a VC

is not even going to take a look at

this. So, something to think about going

forward. All right. Pre- money, post

money, you know, I I think you get that.

Um, pre- money is before you add your

funding, you get a post money. Um,

that's that's pretty pretty

straightforward. Um, I've talked about

the conversion discount already. Um, you

know, just to talk about it, you know,

because we're taking additional risk by

backing you early, we get a discounted

share price.

It's fixed and agreed upon beforehand,

but it's so that there is some

value

to our taking on early stage risk along

the freight train with you guys. So

that's that's why there's a conversion

discount. Okay, time to wrap up and uh

then we'll we'll uh go for questions.

Um, so final thoughts just by way of

summarizing. Um, it it is despite

everything I've said, it's still a lot

of art and there's some science to it,

but there's a lot of art. Um, be sure

you use relevant factors to assess your

company. So, prioritize the things that

you think are important and that you

think will lend credence to why you've

picked the valuation you have. I would

suggest that you maybe try and employ a

few valuation methods and see where you

come up with um just so you can justify

to us market comparables are certainly

helpful. Um you know the space you're in

makes a big difference. Um I I think the

um trend is starting at least in the

public markets to at least come back to

earth. And the last thing I'll say, and

I'm going to spend a a few seconds on

this, is just know your value drivers.

When you come to us,

I think it's really important

that you show us that you're great sales

people.

You could, you want to sell yourself,

you want to sell your company, and you

want to be able to back that up by

highlighting what you feel are your

value drivers. And these are the pivotal

elements that you have that propel your

growth, your market capture, and your

competitive edge. And it's kind of like

me looking at your DNA. And you know,

whether it's a breakthrough technology,

a disruptive business model, an untapped

market, or you guys are amazing team,

you know, if you align the valuation

with your value drivers, it helps

substantiate the numbers. But guess

what? It also ignites our imagination

and enthusiasm about your startup's

potential journey. And you know, a big

one these days, just by way of

digression, is justifying and showing

how big your strategic obtainable market

could be. Obviously, you got to back it

up with valid stats, but that is a big

driver that I'm seeing these days. Okay.

I'm winded. Um, good luck to everybody

and um, you know, I congratulate you on

this journey. Um, I have included some

references here. Some of these are

probably a little bit dated. These will

be in the PDF of course, but uh, have a

look at them. Uh, I I thank you for your

kind attention and I'm more than happy

to um,

take questions.

So maybe Suzanne you can moderate the

questions and I'll uh I'll answer them

or try at least

>> um you can uh put up your hands and if

you put a question in the chat we'll

start there. I think the first person

was Allison.

Is that right?

>> Uh yeah I had asked a question uh in the

chat. My question was uh you mentioned

companies having mature revenue. I was

wondering if you could give or if you

had an idea of what an ARR would be for

what you would qualify as mature

revenue.

>> Um I think it depends on the space

you're in because uh you know I I I you

know the other factor there Allison

respectfully is where you are in the

adoption curve.

>> You know I I think that we

again it's so hard and so variable with

the companies. I'm I'm loathed to give

you a number because it'll probably be

wrong. Like I said, I get it wrong a

lot. Um, you know, if you're in the 50,

75, 100k a sorry, you said a ar r or mr.

A ar a ar a ar a ar a ar a ar a ar a ar

a ar a ar a r

>> an ar gez um

>> I'm

>> you can give it an

>> I'm picking a number 500 750 but you

know it just it it depends on um you

know your your NDR your net dollar

retention rate. It depends on how sticky

your customers are. What's your churn?

Like there's there's just a lot of

variables that go into that beyond like

an absolute number.

>> Okay.

>> Sorry, I don't mean to avoid it, but

just there's a lot of factors.

>> No, fair enough. Fair enough.

>> Uh Connor, you had a question in the

chat.

Yeah, I guess it's it's just extending

my earlier question, but around some

hybrid between like a comparable

transactions method and then applying

that VC mindset so that you kind of know

in maybe a shorter term, not fiveyear VC

mindset, but like you know, two or three

years from now,

>> y

>> we're hitting this milestone. We know

comparable deals of this value here.

>> Yes.

>> Can we work backwards?

>> Yes, you can. You can, Connor. And I I

think you know as I indicated when I

talked about comparable transactions and

also uh you know the scorecard method

just make sure that you've honed it down

to a very comparable space

>> right now. I know what you do so that's

great but I'm saying you just got to

really drill it down so it's a very

similar space.

>> Okay. Thank you.

>> You're welcome.

>> Hum.

Hi Brian. Mhm. Thank you. Thank you for

the session. Um I'm just curious to

>> uh ask about so in early discussions

with uh investors especially when you're

looking for a lead investor. Um

sometimes we get the feedback that we

should rather than ask for a large

amount right away that we should split

it up into maybe two rounds or three

rounds of smaller uh smaller amounts. Um

how do you avoid being over diluted in

this case? because we know that we need

a certain amount to get to a certain

place, but if we start asking for less

amounts, which totally fine. Uh but I'm

just worried about that we might get

over diluted that way.

>> Yeah. I mean, it's it's a it's a very

legitimate concern, Hassam. And um

again, I I think the best answer I can

give you is you just have to

throw all those different factors into

the broth and you're you're going to

have to project out

your run rate, your burn, like and and

and this is what's so hard for you guys

is you really got to know your burn. um

be sure about your I would

conservatively estimate your growth rate

so you you don't get too high a set of

valuations on each subsequent round. Um,

and

you know, I I don't know what your

specific advice what specific advice you

were given, but be careful

with, you know, a lot of rounds early

because

that's a lot of work, dude. And, you

know, now you're in negotiations each

round.

I be careful is is my advice. I don't

know if I've answered your question, but

I I think you really got to think about

a lot of those factors

when you go into that. And kind of as

Connor alluded to, um really start at

the end point of those whatever it is,

what are you doing? Two rounds, three

rounds, really start at the end point

and work back. Know what you need and be

very clear on and this is where you need

an accountant and a good mathy person.

um you know because you're going to say

look I got to have

30 40 50 60 70% ownership in this

company. I'm just throwing numbers at

you to make it worth my while and you

really have to think about that. So

again that's a a situation where you

want to project out in time and then

calculate back. And just to follow up on

that because you mentioned something

about the growth rate can help kind of

predict uh or or work that in. Um what

about if it's like a therapeutics

company where it relies mostly on

investments and it's pre-revenue? How do

you take that into consideration?

>> Yeah, different space. Totally different

space. I mean that $1 billion syndicated

seed I was telling you about,

>> you know, they're starting on products

now. They have a suite of products

related to longevity which is abs

freakingutely amazing but they haven't

earned a penny and they're burning huge

amounts of money. So you know the life

sciences it sounds like that's where you

are is a different kettle of fish and so

you know that's where you have to go to

you know someone who will give you very

good advice on evaluation whether you're

in therapeutics or whatever. Um, and you

know, you you Connor, you heard Connor

talk about this. You know, it it depends

on um you know, what milestones have you

hit? Have you got FDA? You know, what

regulatory hurdle KPIs have you have you

crossed? Those kinds of things, if that

makes sense.

>> Yeah, it does. Yeah.

>> Okay.

>> Um,

>> thanks. Uh so Brian mine I feel like

Han's question was a perfect segue for

mine. I'm also in life sciences and my

question was so our round we've got a

trenched we're doing a preede two

tranched um stages in this preede we've

taken into account how much we need to

raise to maintain the the dilution we're

aiming for to achieve that we want to

achieve. So we've done we've started at

the end and worked backwards

>> right

>> now recently so we the current round is

the smaller one um and then when we hit

some value inflection points trans 2

would be at a higher valuation but

recently someone's suggested to me that

this is confusing a tranched rounds and

it might be better to have one valuation

one round but offer a bigger discount

for those companies now um and we can do

the discount so that it aligns to the

same um equity that we're willing to

give up.

>> Yeah. Yeah. No, excellent question. You

know, it's it's so great to hear that so

many of you are working backwards as

opposed to picking a number and just

using that as your starting point. So, I

give you full props.

You know, look, I have biases. I have

cognitive and framework biases. My bias

would be the latter approach. Frankly,

that's me. Um, you know, do it in one

round and and and and sweeten the pot

with a reasonable conversion discount.

You know, I just

I I just I'll say this. Every time you

raise,

it's a lot of work.

It's a lot of work. And you know, and

this is where I say I'm thinking of you.

Like I want you focused on your company.

I want you hitting your KPIs. And if you

have to come back to the table and do

the the rounds again,

you know, it's just it's it's tough. So

my bias would be the ladder approach as

opposed to trenches. Um talk to some

other people. There are a lot of great

people willing to give advice in this

space. I think you're going to see some

of them if I'm not mistaken as Suzanne

can tell me, but you know there are a

lot of good people who give you advice

in that regard. Um Mora Campbell,

Suzanne, am I allowed to shout out names

here?

>> Absolut Yes. Absolutely.

>> Mora Campbell is an abs freakingutely

great resource in this space. She's

exited. She's busy cuz I give too many

people her name, but um she can

certainly help you with this kind of

thing. But as I say, long story short, I

I'd bias towards the ladder strategy.

>> Thanks so much,

>> Carson.

>> Yeah, thank you so much, Brian. This was

extremely helpful. Uh really appreciate

it. Um I had also a session with a group

of angel um angels who invited me to

join the session to see how the entire

process works with a bunch of other

companies. And so they were the and then

I was also in that closed room where

they were discussing to just see the

entire process as well for ourselves.

>> Um and I I saw that most of the angels

in the room were more biased towards

convertible node compared to safes. And

then I had later on conversations with

some of those angels as well and they're

like well we would rather have

convertible note than safe. But then

when I went to my lawyers um they're

like well what what what about if we um

we have safes but in like having a

maturity date and with interest rates

and with like very high discounts that

would still complement the convertible

note. Is there a way to actually

negotiate that? And I have had

conversations with several angel groups

here in Ontario and also um across

across Waterl and other places and

everyone is into convertible note and I

think for for a founder it probably does

not make a lot of a difference in terms

of like well that definitely at the end

of the day converts to equity and you

have a part of a share and like being

fair to the people who come in and and

bet on you in the beginning is is just

like providing that safer space for them

to to to thrive and to to have that

capital in like and I want you to like I

want to create wealth for you. So I I

want to create opportunities for you to

to get to that stage too. And so I think

like right now I'm in that stage where

I'm still trying to ne negate into to

bring these people together to see how

we could do that. And that leads me to

the second part as well where now you're

having angels but then they're like well

we are investing but you can bring in VC

here too. And they're like, well, now

it's not smaller term smaller rounds

like 750K or 500K, but it's a bigger

round of like 2 million maybe because

when VCs come in, they're probably not

going to be doing 750 or 5 500K, but

then they're like, well, bring in a lead

VC and now we can come in. It's like

it's like, oh my god. Like, yeah, you

have you have now so many players that

you have to bring them all aligned

together. And so the advice that I got

was well find a lead investor, have them

define the terms and then the rest will

all come together. And so I'm like what

what do you think what what should I be

doing? Because lead investor is also

it's like well if you find a lead

investor

you already have some some people who

are interested already in in how do you

go about it?

>> Yeah. Okay. So that was multifaceted.

I'll try and highlight what I think are

your questions.

you know, so the lawyer

the safe it's just it it's just like

throwing jello against a wall. I I just

and I that's why I gave you guys that

example because you know sometimes you

need more money than you think and you

got to go back to the well and diluting

safes is just painful. Um, you know, I'm

on the board of a company where we've

we've did convertible notes from the

get-go.

Sometimes with a convertible note, if

you have to do a subsequent unexpected

round, um, you can just kick off or kick

back the maturity date. So, you can go

to the investors and say, "Look, you

know, um, product market fits taking a

little bit longer than we think. We're

still on track, but it's a bit slower.

do you mind if we

defer on that maturity date? We've done

that and it's not a big deal and most

good investors as long as you show

growth Gara will be amenable to that. So

the bias like I said is for a

convertible note. Now you said something

which I'm going to pick up on which is

VCs always come in at a much higher

number. That's not so true anymore. Um,

I can tell you that I'm an an LP in a

fund that is very happy going in on

preede

stuff, like early stage,

earlier than you think they'd go in, and

they'll write a check for 250, 500,

something like that. Um, they'll be a

lead. So, there are those companies out

there. It's not just that you have to go

to A16Z and they want, you know, they

want to write you a check for five

million and nothing less. Do you know

what I mean? Does that make sense to

you? So again, um, you know, the it

sounds like the advice you were getting

was to go towards a convertible from the

majority of angels. Did I hear you

correctly?

>> Yeah, pretty much like that. I think I

talked to three angel groups in there

like, yeah, convertible. Convertible

mode is where where we're headed. And as

I said, I mean, I can tell you from can

anecdotally because I try and attend

most meetings. Do we do we go with