The client specialises in the development and operation of data centres in the Asia Pacific market.
The client had developed a unique technology that enabled disruptive and low-cost operation of large data centres in the Asia Pacific market. The company was led by experienced personnel with a proven track record in data centre operations and had strong industry relationships necessary to build channels into major buyers of data warehousing.
Data centres are large capital-intensive items of infrastructure. The initial build demanded at least $100M in capital. Further capital would be required. Raising this level of capital for newly minted start-up at a pre-money valuation that would preserve founder equity presented a particular challenge.
A traditional discounted cashflow model (top down) or cost model (bottom up) would not recognise the unique value of the enterprise.
The client approached EverEdge to undertake a valuation of the business and its intangible assets that would provide guidance for the capital raise.
Business valuation is never straightforward for any company. For start-ups with little to no revenue or profits and less-than-certain futures, the job of assigning a valuation is even more challenging.
EverEdge’s valuation went beyond cashflow and cost basis valuation methodologies to consider not just quantitative but also qualitative and contextual drivers of the business.
From a quantitative perspective, establishing the current value of a business is a function of expected return to investors and required return, based on the risk of the venture. This required an assessment of the value proposition to customers to predict the time and probability of reaching full capacity.
From a qualitative perspective, the startup was a new venture with no tangible assets; all of the value in the client resided in intangible assets, especially those around trade secrets and know how.
These assets underpinned the value proposition to customers. If these assets were eroded too quickly, competition could limit the client’s ability to reach capacity and achieve anticipated returns.
The final consideration driving the valuation was context. Among other factors EverEdge considered market forces, comparable company information, transactions, investment rounds, and perhaps most importantly the unique strategic importance of the client’s technology to the data centre market.
Combining and comparing the results of these three approaches enabled EverEdge to clearly quantify the potential value of the venture.
The start-up’s disruptive technology (supported by its unique intangible assets) plus its experienced team and strong customer proposition outweighed the perceived risk of the company’s unproven record.
EverEdge valued the company at over $100 million. This valuation was adopted by the client’s investment bank and incorporated wholesale into the investment memorandum for the capital round.
The client successfully raised over $400M in a round led by Goldman Sachs and private equity group TPG Capital. This capital has funded the establishment of its first data centre.
This transaction is the largest pre-revenue capital raise by a start-up in Asia.