Valuation

Thursday, 7 September 2023 10:28

This is getting the actual value of a company.

Steps in a valuation
1. Understand company that is being valued
What is the business model and how they make their money.
2. Understand country/sector where target company operates
3. Choose appropriate valuation approach
a. Income approach
b. Market approach
c. Asset approach (won't touch on this)
4. Estimate key valuation parameters
5. Estimate value and interpret results

Uber and Airbnb - Tech industry

Sasini - Agro-processing industry

The market approach

- Comparable multiples; Using the value of an existing company and getting the value of an
unknown company.
To do so, you need to understand the model of the startup to avoid overvaluation or
undervaluation.
E.g. Kwara startup
B. Model - Gives loan and allows savings
Comparable company - …

There is a rule of thumb to select a comparable. Follow the order;

Private Kenya
Public Kenya
Private Africa
Public Africa
Private Emerging
Public Emerging
Private West
Public West

Process of comparable multiple method

1. Find comparable companies/transactions
2. Determine which multiples to use - EV/EBITDA, EV/Sales, P/E etc.
3. Calculate mean/ median for metrics
4. Apply discount to cater for illiquidity premium small firm discount
Illiquidity discount is done to account for the size. (ranges from 30%-60%)
5. Apply metric to company

Mzuri Taxi

Comparable
EV/Turnover

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EV/Turnover
Easy Taxi = 17,999,045,000/467,975,170 = 38.4615
Uber Taxi = 7,809,000,678/257,359,600 = 30.3428
Average = (38.4615+30.3428)/2 = 34.4022

EV/Collections
Easy Taxi = 17,999,045,000/3,599,809,000 = 5
Uber Taxi = 7,809,000,678/1,286,798,000 = 6.0686
Average = (5+ 6.0686)/2 = 5.5343

Discounting the metric

Turnover: 34.4022 x (1-0.3) = 24.0815
Collections: 5.5343 x (1-0.3) = 3.874

Value of the company

Value from turnover
24.0815 x 5,175,000 = 1.2462E8

Value from collection

3.874 x 34,500,000 = 1.3365E8

Average
(1.2462E8 + 1.3365E8)/2 = 129,135,000

Probability of survival
The duration of a startup has an expectation of its survival. (20% - 70%)
Usually it is 50% unless stated otherwise.

129,135,000 x 50% = 64,567,500

- DCF

Entrepreneurial Finance Page 2