Лекц 18 Valuation for private equity

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Лекц 18 Valuation for private equity

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Лекц 18 Valuation for private equity

  1. 1. Valuation for Private Equity
  2. 2. Private Equity  Large quantum of equity coming from a single pool of funds  Equity is unlisted, not traded  Angel investors  Venture capital (VC) firms  Private equity firms  Scale of investment varies
  3. 3. Venture Capital (VC) Method of Valuation  Valuation used by angel, VC, and private equity investors  Determines equity stake percentage for a given amount of equity provided  Not as detailed as discounted cash flow (DCF)
  4. 4. Investment Period  Period for which VC invests money  Typically 3-7 years  At the end of this period VC wants to exit
  5. 5. Investment Amount  Total capital required determined based on initial investment required plus burn rate till business generates positive cash flow  Investment required from VC is total capital required minus   Capital raised through debt Capital raised through other equity sources • Promoters and FFF (friends, family, and fools)
  6. 6. Exit Valuation  Value of company at the time VC wants to exit  Based on multipliers on EAT or revenue projections at time of planned exit  10 X EAT  1 X revenue  This gives total firm value  Equity plus debt  Equity value at exit is total firm value minus debt
  7. 7. IRR Expected by VC  VC expects an IRR on investment much higher than normal cost of capital  Higher IRR to compensate for high risk being taken by VC  Typically VC expects IRR of 50%
  8. 8. Valuation and VC’s Stake  POST:  Present value of equity after investment made by VC  INV:  PRE:  post-money valuation investment made by VC pre-money valuation Present value of equity before investment made by VC  POST determined by discounting equity value at exit by VC’s IRR  PRE = POST – INV  VC’s stake = INV / POST
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