Business Situation
A US-based VC fund was evaluating a $25 million pre-series investment in a precision oncology diagnostics startup developing liquid biopsy technology. The company had early clinical results and partnerships with major hospitals.
The client engaged us to:
- Develop a dynamic, driver-based discounted cash flow (DCF) valuation model with a modular structure, enabling easy updates and transparent assumption tracking.
SGA Approach
Early-Stage Preparation
- Reviewed clinical development roadmap, IP strategy, and other milestones
- Analyzed current pricing benchmarks and assumptions for oncology diagnostics
- Identified key value drivers, including patient adoption rate, expansion rate, and gross margin improvements at scale
Mid-Stage Execution
Structured the model, including:
- Control Tab: A structured control tab containing all key operating assumptions, including revenue drivers (pricing, volume growth, and adoption curve), churn and retention metrics, cost structure, hiring plan, R&D spend, and working capital parameters.
- Revenue Tab: A revenue model with detailed forecasting by product line and market segment, incorporating patient/test volumes, pricing strategy, adoption rates, and distribution assumptions.
- Expense Tab: An expense tab separating R&D, COGS, SG&A, and clinical trial expenses, including headcount-linked salary and milestone-based spend logic.
- Schedules: Integrated capital requirements & funding schedule to model cash runway, future equity rounds, dilution impact, and milestone-driven financing needs.
- Scenarios: Base, upside, and downside valuation scenarios to reflect business uncertainty.
- Statements: Monthly (or quarterly) and annual financial statements tabs.
- Model Flexibility: Automated dashboard to toggle between scenario outputs and investment return profiles.
Late-Stage Finalization
- Delivered a valuation summary sheet, consolidating NPV, IRR, payback period, and cash runway.
Included sensitivity analysis across:
– Weighted average cost of capital (WACC), reimbursement rates, and turnover
– Terminal value using EV/Revenue exit multiples + perpetuity validation
- Added visual charts and KPIs: Margins, free cash flow, ROA, ROI, burn rate, break-even timeline, etc.
- Documented transparent assumptions and risk commentary for Investment Committee use.
Key Takeaways
- Decision-Ready Valuation: Delivered a defensible valuation range backed by transparent assumptions to support pricing and term sheet negotiation.
- Dynamic Decision Support: Model flexibility enabled rapid iteration during diligence, partner discussions, and IC reviews.
- Future-Proof Model: Designed a scalable valuation tool that can be updated when new clinical and commercial data becomes available.
- Stronger Investor Positioning: Helped the client justify deal economics to co-investors and LPs with credible analytical support.
