Venture Financing:

Business Valuation

Valuation Quantification Techniques

Determining How Much of the Company Equity Can Be Exchanged for the Venture Capital Injection

Source: Saratoga Venture Finance

 Venture Financing Funnel

 Venture Financing: Key Documents To Be Prepared by a Venturepreneur

 

Multiple ROI

"How many times our investment can we reasonably expect from the time we invest to the time we are liquid, i.e., when the start-up goes public?"

(Used most often by venture capitalists in seed and later rounds of private funding of start-ups.)

One dollar in today's money will be worth how many dollars at IPO?

ROI per Year

"How much will we earn per year by the time the start-up goes public?"

(Particularly important for the investor in the earliest stages of a lengthy start-up.)

If we put one dollar into the bank, how much interest would it have to earn each year to be worth the IPO price?

Percent Control

"How much of the voting stock will we control after this round of financing?"

(More important for actively participating investors than for others.)

What percent of the stock of the company will be owned by investors versus management and employees (counting all options as if exercised)?

Next Rounds

"How much room is left for the next round of investors if the start-up needs another round? Will that be enough to attract them, especially if the start-up gets into trouble? Will we be able to avoid a write-down of our share price in the next rounds?"

(Most important for strategy in funding a start-up that needs a lot of capital or one that has been disappointingly long in going public.)

If we raise the price in each successive round of funding by a ratio 2:1, can we hit the desired IPO price?

Prior Rounds

"Will the pricing of this round make too high a profit for the last round since they have invested?"

(New investors do not like windfall profits for prior investors; instead, the new money tries to keep the markup of shares below 3:1, boom periods can increase that ratio.)

Historical Multiplies

"Using the start-up's historical financial statements, are the prices of this round reasonable when compared to equivalent companies? How many times revenue does this round represent?"

Future Multiplies

"Using forecasts of the start-up's financial statements, are the prices of this round reasonable when compared to equivalent companies? How many times revenue, profit, book value and cash flow does this round represent?"

(This is used especially for pricing initial public offerings.)

 

 

 

 

 

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Business Valuation Software

Millennium Quick Value Pro

Business Valuation Model Excel