Often you would see startups pitching their idea emphasizing the technicalities. But often ignores or focus less on the marketing, financial and legal side of things. The workshops at CIMA Launch Pad 2018 aimed to address these very areas.
As the 10 shortlisted teams prepare for the final phase, the workshops had a few key insights to offer. Continuing from marketing and design thinking, was about valuations and the legal aspects.
Valuations: Intrinsic and relative
According to Shamlin Assen, Senior Manager at KPMG and Kasun Gunawardhana, Senior Consultant at KPMG, there are 2 standard valuation methods. One is the intrinsic valuation method. This includes methods such as cash flow, earnings based, and net asset value. The second is the relative valuation method. This looks at methodologies such as comparable company multiples and comparable company multiples.
But what do all these methods mean? Well, that depends on each method itself. A cash flow valuation method would make sense for established or growing companies. Why? Because this process deals with the value of money over different time periods. This means having historical financial data to prove such a valuation.
Then there are relative valuation methods. According to Shamlin, if you’re a startup and there’s already an established company, you could study their financials. Based on this a relative valuation could be made for your startup. Yet, Shamlin notes startups should ensure that investors are satisfied with valuation assumptions.
Shamlin and Kasun went on to talk about the key concepts and misconceptions of valuation. They also talked about the pitfalls to avoid when it comes to specific valuation methods. Particularly to ones such as discounted cash flow and market multiples based valuations.
At the end of the day, what matters is being able to figure out the value of the owner’s interest. Of course, having a powerful story for your startup plays a key role as well.
Following a QnA session with the teams, the Valuation and Financials Essentials concluded.
The last of the workshops before the grand finale was about the legal side of things. Dathika Wickramanayake, Associate at Nithya Partners conducted this workshop. Here, the focus was on sole proprietorship, partners and companies.
Dathika touched on the different elements involved with these types of businesses. Sole proprietorship and partnership, for example, offers unlimited liability. This means the owners are responsible for the business’s debts and liabilities. They can also be cumbersome and often limited when it comes to resources. But companies are recognized as a separate legal entity. Hence, limited liability. Of course, each type of business has its own disadvantages as well. Double taxation is one such disadvantage, at least when it comes to companies.
Further on, Dathika highlighted the five main steps of incorporating a company. For those of you not sure these are,
- Name approval
- Registration with the Registrar of companies
- Registration for Taxpayer Identification Number (TIN) with the Department of Inland Revenue
- Engaging a company secretary
Another important aspect is the structuring of the company. Usually, this includes promoters‘ shares, investors’ shares, Employee Share Options, shares for services, shares for capital, and incentives. Of course, the actual percentage of each element would depend on the company itself.
Adding value and exit strategies
Dathika also touched on the importance of being realistic with valuations. More often than not, startups tend to overvalue themselves. Additionally, when appointing members to the board, one should always include people who add value. Effective contribution should take precedence over being trustworthy.
But it’s not all about valuations and having the right Board of Directors. Another vital part for every business would be the exit plan. A company’s exit strategy can take place in quite a few ways. This includes buybacks, IPOs, trade sales, or a wind-up. “Remember, its not a marriage”, iterates Dathika. Rather, it’s more like raising a child.
So what’s next for CIMA Launch Pad 2018?
With the conclusion of Dathika’s workshop, there was only one thing left. Shortlisting the finalists for CIMA Launch Pad 2018. Each of the 10 teams pitched to a panel of judges comprising of,
- Chalinda Abeykoon – CEO of Crowdisland
- Mafaz Ishaq – Director of Calamander Capital
- Fathhi Mohamed – Co-Founder of PickMe
- Chamira Prasad Jayasinghe – CEO/Co-Founder of Arimac
- Gitendra Chitty – Co-Founder/Principal of K2G Global Partners
Following the 10 pitches, the teams were evaluated and the top 6 were selected. Thereby, teams Ananke, Viduhala, Rational-X, Direct Pay, KitGro and Avina will be pitching for the top spot at the CIMA Launch Pad 2018 Grand Finale. In case you’re not sure who these teams are exactly, here’s a refresher.
So who will win the 2018 spotlight? Guess we’ll have to wait until the 3rd of November to find out.