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Valuation > NPV - Pg. 72

Financing a Game Development Venture Comparables 72 One of the most important guidelines is what is being paid for comparable companies. Most pub- lishers are public companies and report the price of their acquisitions. Find a company similar to yours in size, release history, genre- and platform-focus. The presence (or absence) of valuable proprietary technology or content will make the other company more or less comparable to yours. If you can't find a similarly sized company that has sold recently, you can still extrapolate data from another sale to come up with a benchmark by using multiples , discussed in the next paragraph. Multiples If a comparable company (in terms of release history and intellectual property assets) has 75 em- ployees and sold for $17,000,000, it is not outrageous to estimate your company's value at $260,000 per employee. If a comparable company sold 450,000 console units in the two years prior to sale, and your company has sold 500,000 console units in the past two years, it is not outrageous to think that your company should fetch a higher price. Of course, you cannot base your estimates on any one particular number, because a company's value is determined by so many other factors--future projects, R&D that may not be public, among others. Another common multiple used in pricing development companies is based on earnings, meaning that your company is worth X to Y times its annual revenue. IRR Depending on whether an MBA is at the wheel, your purchaser may talk about IRR when justifying a price for your company. IRR means internal rate of return. Purchasers who think in these terms look at what kind of profit they need to make on their investment three, four, five years out--say 40 percent. Then they look at the cash flow your company is likely to throw off, based on your income