Venture Capital Method of Valuation

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Venture Capital Method of Valuation

  1. 1. Business Plan Preparation Frank Moyes College of Business and Administration University of Colorado Boulder, Colorado
  2. 2. Required Return on Investment <ul><li>Seed 80%+ </li></ul><ul><li>Start-Up 60% </li></ul><ul><li>Early Stage 50% </li></ul><ul><li>Second Stage 40% </li></ul><ul><li>Third Stage 30% </li></ul><ul><li>Bridge 25% </li></ul><ul><li>19x </li></ul><ul><li>10x </li></ul><ul><li>8x </li></ul><ul><li>5x </li></ul><ul><li>4x </li></ul><ul><li>3x </li></ul>ROI 5 yr. Increase Bygraves & Zacharakis 0
  3. 3. Venture Capital Method Key Assumptions <ul><li>Net Profit </li></ul><ul><li>Valuation Multiple </li></ul><ul><ul><li>Price/Earnings </li></ul></ul><ul><ul><li>Price/Revenue </li></ul></ul><ul><ul><li>Price/EBITDA </li></ul></ul><ul><ul><li>Price/Seller’s Discretionary Earnings </li></ul></ul><ul><li>Investor ROI </li></ul>
  4. 4. Venture Capital Method Mountain Unicycles Investment $1 million Exit year 5th year Revenue $20 million Net profit (10%) $2 million
  5. 5. Venture Capital Method Mountain Unicycles Investment $1 million Exit year 5th year Revenue $20 million Net profit (10%) $2 million Growth Rate 20% P/E multiple 15x Company value ?
  6. 6. Venture Capital Method Mountain Unicycles Investment $1 million Exit year 5th year Revenue $20 million Net profit (10%) $2 million Growth Rate 20% P/E multiple 15x Company value $30 million
  7. 7. Venture Capital Method Mountain Unicycles Investment $1 million Exit year 5th year Revenue $20 million Net profit (10%) $2 million Growth Rate 20% P/E multiple 15x Equity value $30 million Required ROI ? Required Increase Required $ value
  8. 8. Venture Capital Method Mountain Unicycles Investment $1 million Exit year 5th year Revenue $20 million Net profit (10%) $2 million Growth Rate 20% P/E multiple 15x Company value $30 million Required ROI 60% Required Increase ? Required $ value
  9. 9. Venture Capital Method Mountain Unicycles Investment $1 million Exit year 5th year Revenue $20 million Net profit (10%) $2 million Growth Rate 20% P/E multiple 15x Company value $30 million Required ROI 60% Required Increase 10x Required $ value ?
  10. 10. Venture Capital Method Mountain Unicycles Investment $1 million Exit year 5th year Revenue $20 million Net profit (10%) $2 million Growth Rate 20% P/E multiple 15x Company value $30 million Required ROI 60% Required Increase 10x Required $ value $10 million % of company required ?
  11. 11. Venture Capital Method Mountain Unicycles Investment $1 million Exit year 5th year Revenue $20 million Net profit (10%) $2 million Growth Rate 20% P/E multiple 15x Company value $30 million Required ROI 60% Required Increase 10x Required $ value $10 million % of company required 33% Pre-money valuation ? Post-money valuation ?
  12. 12. Venture Capital Method Mountain Unicycles Investment $1 million Exit year 5th year Revenue $20 million Net profit (10%) $2 million Growth Rate 20% P/E multiple 15x Company value $30 million Required ROI 60% Required Increase 10x Required $ value $10 million % of company required 33% Pre-money valuation $2 million Post-money valuation $3 million
  13. 13. Venture Capital Method Mountain Unicycles Investment $1 million $1 million Exit year 5th year 5th year Revenue $20 million $20 million Net profit (10%) $2 million $ 2 million Growth Rate 20% 30% P/E multiple 15x ? Company value $30 million ? Required ROI 60% ? Required Increase 10x ? Required $ value $10 million ? % of company required 33% ? Pre-money valuation $2 million ? Post-money valuation $3 million ?
  14. 14. Venture Capital Method Mountain Unicycles Investment $1 million $1 million Exit year 5th year 5th year Revenue $20 million $20 million Net profit (10%) $2 million $ 2 million Growth Rate 20% 30% P/E multiple 15x 20x Company value $30 million ? Required ROI 60% ? Required Increase 10x ? Required $ value $10 million % of company required 33% Pre-money valuation $2 million Post-money valuation $3 million
  15. 15. Venture Capital Method Mountain Unicycles Investment $1 million $1 million Exit year 5th year 5th year Revenue $20 million $20 million Net profit (10%) $2 million $ 2 million Growth Rate 20% 30% P/E multiple 15x 20x Company value $30 million $40 million Required ROI 60% 60% Required Increase 10x 10x Required $ value $10 million ? % of company required 33% ? Pre-money valuation $2 million ? Post-money valuation $3 million ?
  16. 16. Venture Capital Method Mountain Unicycles Investment $1 million $1 million Exit year 5th year 5th year Revenue $20 million $20 million Net profit (10%) $2 million $ 2 million Growth Rate 20% 30% P/E multiple 15x 20x Company value $30 million $40 million Required ROI 60% 60% Required Increase 10x 10x Required $ value $10 million $10 million % of company required 33% 25% Pre-money valuation $2 million ? Post-money valuation $3 million ?
  17. 17. Venture Capital Method Mountain Unicycles Investment $1 million $1 million Exit year 5th year 5th year Revenue $20 million $20 million Net profit (10%) $2 million $ 2 million Growth Rate 20% 30% P/E multiple 15x 20x Company value $30 million $40 million Required ROI 60% 60% Required Increase 10x 10x Required $ value $10 million $10 million % of company required 33% 25% Pre-money valuation $2 million $3 million Post-money valuation $3 million $4 million
  18. 18. Venture Capital Method Mountain Unicycles Investment $1 million $1 million Exit year 5th year 5th year Revenue $20 million $20 million Net profit (10%) $2 million $1 million Growth Rate 20% 10% P/E multiple 15x ? Company value $30 million Required ROI 60% Required Increase 10x Required $ value $10 million % of company required 33% Pre-money valuation $2 million Post-money valuation $3 million
  19. 19. Venture Capital Method Mountain Unicycles Investment $1 million $1 million Exit year 5th year 5th year Revenue $20 million $20 million Net profit (10%) $2 million $1 million Growth Rate 20% 10% P/E multiple 15x 10x Company value $30 million ? Required ROI 60% Required Increase 10x Required $ value $10 million % of company required 33% Pre-money valuation $2 million Post-money valuation $3 million
  20. 20. Venture Capital Method Mountain Unicycles Investment $1 million $1 million Exit year 5th year 5th year Revenue $20 million $20 million Net profit (10%) $2 million $1 million Growth Rate 20% 10% P/E multiple 15x 10x Company value $30 million $10 million Required ROI 60% ? Required Increase 10x ? Required $ value $10 million ? % of company required 33% Pre-money valuation $2 million Post-money valuation $3 million
  21. 21. Venture Capital Method Mountain Unicycles Investment $1 million $1 million Exit year 5th year 5th year Revenue $20 million $20 million Net profit (10%) $2 million $1 million Growth Rate 20% 10% P/E multiple 15x 10x Company value $30 million $10 million Required ROI 60% 60% Required Increase 10x 10x Required $ value $10 million $10 million % of company required 33% ? Pre-money valuation $2 million ? Post-money valuation $3 million ?
  22. 22. Venture Capital Method Mountain Unicycles Investment $1 million $1 million Exit year 5th year 5th year Revenue $20 million $20 million Net profit (10%) $2 million $1 million Growth Rate 20% 10% P/E multiple 15x 10x Company value $30 million $10 million Required ROI 60% 60% Required Increase 10x 10x Required $ value $10 million $10 million % of company required 33% 100% Pre-money valuation $2 million ?! Post-money valuation $3 million ?!
  23. 23. Venture Capital Method Key Assumptions <ul><li>Net Profit </li></ul><ul><li>P/E Multiple </li></ul><ul><li>Investor ROI </li></ul>

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