New Venture Finance Classroom ActivitIES

Pre-Money Valuations Using Step-Up and Comparables Methods

Watch Beatbox Beverages on Shark Tank and use the step-up and comparables methods to estimate pre-money valuations.

Watch:

• Beatbox Beverages on Shark Tank (full presentation)

Activity form to pass out in class:

• Pre-Money valuations for Beatbox (google doc in-class activity).

Instructor's Notes

• Introduce and explain the step-up and comparables methods for determining pre-money valuation.
• Pass out activity forms to each student, tell them they will join into teams to identify and discuss relevant valuation information from the video pitch.
• Play the video for the class; I suggest that you pause the video at 7:30! Why? This is the point just before Mark Cuban makes them an offer.
• At the 7:30 pause, ask the teams to use the information they have garnered from the video to complete the step-up and comparables methods on the form. Give them around 10 minutes tops.
• Announce that discussion is over (for the moment). Play the remainder of the Shark Tank video (one more minute...).
• Ask students to share their answers to the assignment; have them emphasize the information they used and explain their assumptions. Then share "instructor insights" from this instructor copy of the valuation form. Debrief should include acknowledgement that there is no "one right answer" out of the valuation approaches, but you can triangulate or approximate a number you can use for negotiation.
• Use additional media and materials to debrief (or not).

Beatbox Beverages Friends and Family Valuations

Watch the first four or so minutes of the Beatbox pitch on Shark Tank to see find how much the founders and friends and family have invested in the firm. Let's assume that Beatbox used a convertible debt instrument for their Friends and Family investment so that the debt automatically converts to equity with the Shark Tank round of funding. This activity leads students through the post-money valuation process with conversion of the Friends and Family round using straight conversion, a discount rate, a cap on post-money valuation, and a combination of discount rate and cap.

Beatbox Beverages Friends and Family Valuations Activity Sheet (pdf file)

Media

• BeatBox Beverages takes the world by storm, USA Today, 11/5/2014

Justin Fenchel Letter to MGT/MKTG Department in 2016:

"My name is Justin Fenchel and I am a co-founder/CEO at BeatBox Beverages. We were featured on Shark Tank's Season 6 and received a one million dollar investment from Mark Cuban. ...What makes our story so fun and unique is that we started this while in college, and took an idea to a real deal consumer product that raised $1,000,000 from Mark Cuban on Shark Tank and have now achieved over $2M in total sales. Our story hits on every angle of marketing, finance, operations and entrepreneurship."