• Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint
Share this Page URL
Help

Chapter 9. Valuation of Companies > The Venture Capital Method

The Venture Capital Method

Introduction

Underlying this method is the desire to project the company's value based not on a forecast of the cash flows it is expected to generate, but rather on an estimate of the company's terminal value (TV) at the time of exit, which is the number regarded as relevant for the investors. The present value of the company is subsequently calculated. The result is the present value of the company after the investment (i.e., post-money).

While the determination of the terminal value of the company can be done using any of the methods described in this chapter, the most common method VCs use is the multiples model, primarily due to its simplicity, and that VCs are typically interested in the general range of values the company could fetch at an IPO, where it is typically valued by market participants based on industry multiples. As described earlier in this chapter, there is no one parameter or a set of multiples that are always used, as these will vary from one investor to another, and particularly from one company to another. In addition, the more mature, advanced and well known the company, the more accurate and detailed the process will be, and the closer it will become to traditional valuations.


PREVIEW

                                                                          

Not a subscriber?

Start A Free Trial


  
  • Creative Edge
  • Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint