Use a 30 percent illiquidity discount when estimating exit value for a private company using public company comparable multiples What was the post money valuation of Outreach Networks in 2011 Estimate the value using the venture capital method Excel spreadsheet showing your calculations and explanations Financial Performance and Projections (dollars in millions) 2009 2010 2011 2012P 2013P 2014P 2015P 2016P 2017P Revenue $9 00 $22 00 $63 00 $137 00 $198 00 $260 00 $335 00 $425 00 $525 00 Year on year growth 144 186 117 45 31 29 27 24 COGS $4 20 $10 90 $37 20 $82 40 $117 10 $153 40 $194 30 $242 30 $290 00 Gross Profit $4 80 $11 10 $25 80 $54 60 $80 90 $106 60 $140 70 $182 70 $235 00 Operating Expenses $2 79 $4 32 $8 50 $15 76 $20 78 $29 90 $41 85 $57 35 $77 15 EBITDA $2 01 $6 78 $17 30 $38 84 $60 12 $76 70 $98 85 $125 35 $157 85 Depreciation and Amortization $0 05 $0 11 $0 32 $0 69 $0 99 $1 30 $1 68 $2 13 $2 63 EBIT $1 97 $6 67 $16 99 $38 16 $59 13 $75 40 $97 18 $123 23 $155 23 EBIT margin 21 83 30 32 26 96 27 85 29 86 29 00 29 01 28 99 29 57 Interest Expense $0 00 $0 00 $0 00 $0 00 $0 00 $0 00 $0 00 $0 00 $0 00 Profit before Taxes $1 97 $6 67 $16 99 $38 16 $59 13 $75 40 $97 18 $123 23 $155 23 Taxes 30 $0 59 $2 00 $5 10 $11 45 $17 74 $22 62 $29 15 $36 97 $46 57 Net Income $1 38 $4 67 $11 89 $26 71 $41 39 $52 78 $68 02 $86 26 $108 66 Capital Expenditures $1 00 $1 45 $1 90 $2 45 $3 10 $3 83 Increase in Net Working Capital $6 00 $8 67 $11 39 $14 67 $18 61 $22 99 Free Cash Flow $20 39 $32 26 $40 80 $52 58 $66 67 $84 46 Source Author estimates Comparable Company Valuation Data (dollars in millions) Company Name (Ticker) Market Capitalization Revenue Revenues, 1Yr Growth EBITDA Margin Total Debt Capital TEV Forward EBITDA Forward P E Beta Acme Packet, Inc (APKT) $2,244 $295 45 6 30 1 13 7 24 3 1 50 Aruba Networks, Inc (ARUN) $2,258 $433 48 2 3 0 13 3 31 5 1 95 Aviat Networks, Inc (AVNW) $108 $463 3 9 0 2 7 6 4 2 21 3 1 35 Cisco Systems (CSCO) $100,206 $43,724 4 7 25 3 26 3 6 4 10 3 1 20 Summary Statistics Mean $26,204 $11,229 25 6 14 6 17 0 9 4 21 8 1 50 Median $2,251 $448 25 2 14 1 17 0 9 9 22 8 1 43 Notes Valuation multiples are as of November 2011 The 10 year U S Treasury rate was assumed to be 5 and the market risk premium 6 0

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Question: Use a 30 percent illiquidity discount when estimating exit value for a private company using public company comparable multiples. What was the post-money valuation of

Use a 30 percent illiquidity discount when estimating exit value for a private company using public company comparable multiples.

What was the post-money valuation of Outreach Networks in 2011? Estimate the value using the venture capital method.

Excel spreadsheet showing your calculations and explanations

Financial Performance and Projections
					(dollars in millions)

			2009	2010	2011	2012P	2013P	2014P	2015P	2016P	2017P

Revenue			$9.00	$22.00	$63.00	$137.00	$198.00	$260.00	$335.00	$425.00	$525.00
Year-on-year growth				144%	186%	117%	45%	31%	29%	27%	24%
COGS			$4.20	$10.90	$37.20	$82.40	$117.10	$153.40	$194.30	$242.30	$290.00
Gross Profit			$4.80	$11.10	$25.80	$54.60	$80.90	$106.60	$140.70	$182.70	$235.00
Operating	Expenses		$2.79	$4.32	$8.50	$15.76	$20.78	$29.90	$41.85	$57.35	$77.15
EBITDA			$2.01	$6.78	$17.30	$38.84	$60.12	$76.70	$98.85	$125.35	$157.85
Depreciation and Amortization			$0.05	$0.11	$0.32	$0.69	$0.99	$1.30	$1.68	$2.13	$2.63
EBIT			$1.97	$6.67	$16.99	$38.16	$59.13	$75.40	$97.18	$123.23	$155.23
EBIT margin			21.83%	30.32%	26.96%	27.85%	29.86%	29.00%	29.01%	28.99%	29.57%
Interest Expense			$0.00	$0.00	$0.00	$0.00	$0.00	$0.00	$0.00	$0.00	$0.00
Profit before Taxes			$1.97	$6.67	$16.99	$38.16	$59.13	$75.40	$97.18	$123.23	$155.23
Taxes		30%	$0.59	$2.00	$5.10	$11.45	$17.74	$22.62	$29.15	$36.97	$46.57
Net Income			$1.38	$4.67	$11.89	$26.71	$41.39	$52.78	$68.02	$86.26	$108.66

Capital Expenditures						$1.00	$1.45	$1.90	$2.45	$3.10	$3.83
Increase in Net Working Capital						$6.00	$8.67	$11.39	$14.67	$18.61	$22.99

Free Cash Flow						$20.39	$32.26	$40.80	$52.58	$66.67	$84.46

Source: Author estimates.

Comparable Company Valuation Data
			(dollars in millions)

Company Name (Ticker)	Market Capitalization	Revenue	Revenues, 1Yr Growth %	EBITDA Margin %	Total Debt/ Capital %	TEV/ Forward EBITDA	Forward P/E	Beta
Acme Packet, Inc. (APKT)	$2,244	$295	45.6%	30.1%	-	13.7	24.3	1.50
Aruba Networks, Inc. (ARUN)	$2,258	$433	48.2%	3.0%	-	13.3	31.5	1.95
Aviat Networks, Inc. (AVNW)	$108	$463	3.9%	0.2%	7.6%	4.2	21.3	1.35
Cisco Systems (CSCO)	$100,206	$43,724	4.7%	25.3%	26.3%	6.4	10.3	1.20

Summary Statistics
Mean	$26,204	$11,229	25.6%	14.6%	17.0%	9.4	21.8	1.50
Median	$2,251	$448	25.2%	14.1%	17.0%	9.9	22.8	1.43
Notes: Valuation multiples are as of November 2011. The 10-year U.S Treasury rate was assumed to be 5% and the market risk premium 6.0%.

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