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New venture valuation - The venture capital method

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Just some slides explaining how venture capitalists value your startup, as thought at Massachusetts Institute of Technology.

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New venture valuation - The venture capital method

  1. 1. New venture valuation The venture capital method Floriano Bonfigli, floriano.bonfigli@gmail.com
  2. 2. New venture valuation Earnings Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Post money Pre money Post IPO Pre IPO $5M x 20 = $100M $5M: earnings after 5 years when company goes public, number coming from your business plan 20: value multipler for this kind of company when going public, number coming from the market $100M: expected values of the company going public 0000 Step 1.
  3. 3. New venture valuation Earnings Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Post money Pre money Post IPO Pre IPO $5M x 20 = $100M $5M: earnings after 5 years when company goes public, number coming from your business plan 20: value multipler for this kind of company when going public, number coming from the market $100M: expected values of the company going public 0000 $13.2M IF In 5 years value of the company will be $100M Then Step 1. Step 2. Now, the value of the company is $13.2M (some financial math applied)
  4. 4. New venture valuation Earnings Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Post money Pre money Post IPO Pre IPO $5M x 20 = $100M $5M: earnings after 5 years when company goes public, number coming from your business plan 20: value multipler for this kind of company when going public, number coming from the market $100M: expected values of the company going public 0000 $13.2M IF In 5 years value of the company will be $100M Then Step 1. Step 2. Step 3. Now, the value of the company is $13.2M (some financial math applied) IF Then He will ask for $5M/$13.2M= 38% of the company The venture capital wants to invest $5M
  5. 5. Reference http://ocw.mit.edu/courses/sloan-school-of- management/15-431-entrepreneurial-finance- spring-2011/lecture- notes/MIT15_431S11_lec01.pdf

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