Value Creation
Australian private equity and venture capital industry avoid SMEs which are the backbone of jobs creation and innovation in Australia.
 
AAIMX facilitates and assists client funding raising activities.  Using AAIMX services enhances the transparency and authenticity of a clients business.  AAIMX delivers a pathway to solve the traditional problems faced by entrepreneurs and SMEs is securing seed, growth and expansion funds.
 
Creating value in a business is increasingly predicated on developing and controlling intellectual property assets. The value of intellectual property as a percentage of the market value of a business has increased dramatically from 5% in 1978 to 72% in 1998.

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The economic advantages intellectual property assets deliver to a business:
  • premium pricing / profits
  • create a cost advantage
  • overcome / create barriers to entry
  • establish technological superiority (First to market)
  • establish technological standard
  • enhance market share / entry into new markets
  • represent "currency" in transactions (Barter)
  • form Basis of New Business (JV or Spin-off)
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Traditional business valuations examine similar companies based on their size, industry, and business description whereas intellectual asset valuation is based on the similarity between a potential guideline of the company's intellectual assets and the subject intellectual assets.
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Problems with Private Equity and Venture Capital Funding

The problems many entrepreneurs and SMEs face is securing and giving by effective control to private equity and venture capital funding providers. Funding sourced from private equity and venture capital funds requires an abnormally high discount rate to account for additional risk implicit in a start-up  The Weighted Average Cost of Capital is the percentage return required by private equity or venture capital firm's investors in return for undertaking the risk of investing in the business.  

The high discount on the valuation of SMEs by private equity and venture capital firms gives rise to widespread discontent from business founders.  Due mainly to a large percentage of any value upside being diverted/ lost by business founders.  
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Venture Capital firms risk assessment considerations can include:
  • ability to convert scientific discovery into a commercial technology
  • stage of product development for products that incorporate the subject intellectual assets
  • Ability to commercially launch products strength of protection
  • Competitive Environment / Barriers to Market Entry
  • Intellectual Property (existing and to be developed)
  • Management Expertise
  • Board of Directors
  • Regulatory Risk
  • Development Track Record
  • Manufacturing, Marketing and Logistics

Value Terms to Know

Present Value: The value of a future cash flow expressed in today's dollars
NPV (Net Present Value):
A project's net contribution to wealth (i.e., the present value of annual net cash flows minus initial investment)
IRR (Internal Rate of Return): Discount rate at which NPV = $0
Hurdle Rate: The rate to which a project's IRR is compared. A project is generally not undertaken if IRR < hurdle rate
EVA (Economic Value Added):
Net operating profit after taxes minus capital charge (i.e., cost of capital x assets employed).
WACC (Weighted Average Cost of Capital) commonly used:
A percentage return required by firm's investors in return for undertaking the risk of investing in the firm.  That is, investors that place money into private equity funds expect a high rate of return, therefore the cost of funding imposed on SMEs needs to be even higher
   
 

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