Stock options are most valuable when the underlying stock can be readily exchanged in a well-functioning, liquid marketplace. Appreciation of any magnitude in an employee’s net worth can only reasonably be achieved through equity compensation. It is no wonder that stock option programs are such an important component of compensation packages to employees of high-growth companies. This paper quantitatively dissects the economic benefits to employees, managers and investors alike of having a well-functioning, liquid secondary market for private company shares. It goes a step further to show that a healthy secondary market will enable faster capital return cycle, to the benefit of the entire entrepreneurial ecosystem.
White Paper - Selling in the New Normal: For Organizations with Complex Sales...Selling to Zebras, LLC
Still waiting for the economy and business opportunities to get back to normal? Change is Required to Survive! In the “New Normal” complex sales organizations have learned that their best efforts and previous approach to selling customers in complex sales cycles no longer work; sales levels, margins and average deals sizes are down and sales cycles are longer with many ending in non-decision. Jeff Koser describe the necessary components to be successful in the New Normal.
IB Business and Management (Standard Level)
All material taken from the IB Business and Management Textbook:
"Business and Management", Paul Hoang, IBID Press, Victoria, 2007
White Paper - Selling in the New Normal: For Organizations with Complex Sales...Selling to Zebras, LLC
Still waiting for the economy and business opportunities to get back to normal? Change is Required to Survive! In the “New Normal” complex sales organizations have learned that their best efforts and previous approach to selling customers in complex sales cycles no longer work; sales levels, margins and average deals sizes are down and sales cycles are longer with many ending in non-decision. Jeff Koser describe the necessary components to be successful in the New Normal.
IB Business and Management (Standard Level)
All material taken from the IB Business and Management Textbook:
"Business and Management", Paul Hoang, IBID Press, Victoria, 2007
A bold attempt to address compensation related questions of those trying to make the leap from large corporations to young startups. Having mentored many such transitions, I thought I would put general guidelines out there, but this is not a ready-reckoner by any means.
In a competitive world we often look to track records as a measure of skill. For example, doctors with better previous patient outcomes are expected to perform better with future patients than doctors with worse previous
outcomes. The same holds true of attorneys and their clients. Investors often mistakenly apply the same reasoning to ‘active’
money managers. Whether they are well-known staid mutual fund managers or high flying, headline seeking hedge fund managers, investors often assume that money managers with great track records are skillful and so can continuously
outperform the market.
Agency talent churn is coming. The Great Recession has bred hordes of restless agency staffers. These valuable people are getting ready to seek better jobs.
Here are some thoughts on addressing this problem.
Equity-Investment Analyst who have been working in the financial markets for over 35 years. A University of Pennsylvania Wharton School of Business Graduate, an Investment and Financial leader on Capital Hill in Washington, DC and 20 years of financial modeling and analysis consulting experience. I am a teacher, a mentor and accomplished businessman eager to share my experience, and helpful advice
After twelve (12) years, your business is wildly successful with m.docxgalerussel59292
After twelve (12) years, your business is wildly successful with multiple locations throughout the region. You are now ready to think really big. You want to purchase a huge competitor. (Note: You determine whether the competitor is a privately or publicly held company.) To expand, you will need additional capital from the debt or equity market, or both.
Write a five to seven (5-7) page paper in which you:
1. Use one (1) of the valuation techniques identified in Chapters 10 and 11 to calculate the value of the competitor you wish to purchase. Note: You will have to make assumptions; however, your assumptions need to be rationally supported.
2. Analyze the various financial tools available to you to determine the tools that will be most helpful in assessing whether your company can afford to purchase the competitor. Support your response.
Imagine you can indeed afford to purchase the competitor; however, you will need an additional $100 million.
3. Examine the options available to you to finance the competitor through the debt market, recommending the best alternative as a result of your analysis. Provide support for your recommendation.
4. Examine the options available to you to finance the competitor through the equity market, recommending the best alternative as a result of your analysis. Provide support for your recommendation.
5. Conduct a cross comparison of your debt and equity examinations to determine where to ideally obtain the additional $100 million funding needed to make the purchase and the approach that you would take to securing the funds. Provide support for your recommendation.
Your assignment must follow these formatting requirements:
· Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
· Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
The specific course learning outcomes associated with this assignment are:
· Apply the fundamentals of entrepreneurial financing.
· Examine the equity approach to valuing a new venture.
· Analyze the venture capital process.
· Compare and contrast different types of entrepreneurial financing.
· Examine and discuss security structures.
· Use technology and information resources to research issues in financing entrepreneurships.
· Write clearly and concisely about financing entrepreneurships using proper writing mechanics.
Assignment 4: Financing an Expansion 1
Assignment 4: Financing an Expansion 2
Assignment 4: Financing an ExpansionName UniversityFIN 317December 14, 2014
Prof. name
FINANCING AN EXPANSION
No doubt this is a profitable business destined to continue being so as it makes a great effort to pr.
Valuation of Startups [with limitation of traditional valuation approach] Nitin Pahilwani
Valuation of Startups [with limitation of traditional valuation approach]
1. Introduction…
2. Factors affecting Start-up Valuation…
3. Limitation of Traditional Valuation Method…
4. Start-up Valuation Method…
a. Venture Capital Method…
b. Berkus Method…
c. Scorecard Method…
d. Risk Factor Simulation Method…
e. First Chicago Method…
5. Closing the Valuation Gap…
Valuation of Startups [with limitation of traditional valuation approach] N Pahilwani & Associates
Valuation of Startups [with limitation of traditional valuation approach]
1. Introduction…
2. Factors affecting Start-up Valuation…
3. Limitation of Traditional Valuation Method…
4. Start-up Valuation Method…
a. Venture Capital Method…
b. Berkus Method…
c. Scorecard Method…
d. Risk Factor Simulation Method…
e. First Chicago Method…
5. Closing the Valuation Gap…
Running head STOCK PERFORMANCE AND EQUITY INVESTMENTS1STOCK .docxagnesdcarey33086
Running head: STOCK PERFORMANCE AND EQUITY INVESTMENTS 1
STOCK PERFORMANCE AND EQUITY INVESTMENTS 4
Stock Performance and Equity Investments
Toni Stewart
Rasmussen College
Author Note
This paper is being submitted on September 6, 2015 for Professor Roundtree’s B230/FIN1000 Principles of Finance course.
Stock Performance and Equity Investments
Investors and stock analysts use the price earnings ratios and the performance of the stock to determine whether the pricing for the stock is average and profitable for both parties. Economists argue that the average price earnings ratios for a stock can help in predicting the performance of the stock of interest (Hafer, 2007). The trends in the past performance can be compared to the current situation to make predictions on investment. This report analyzes the performance of the five stocks selected.
Starbucks Corp (SBUX)
The past performance may not indicate the future success of a business. The Starbucks stock valuation is improving with the SBUX trading at 30 times the forward its earnings. This is a tremendous result which shows a much more expensive than its average for a five year plan which is 25 times. The share prices have increased over the past few months. This has been caused by the increased number of customers in their shops which increase their capital structure. The high tech plans for SBUX delivery plan that has been put into place has juiced up the sales of the coffee shop. This has been a great focus on the changing technology by the company. The promising technology has prompted investors to venture and buy shares from the market thus increasing the demand of the SBUX shares. The preferred shareholders in the SBUX are compensated first in case of any business decision of dissolving it. This differentiates them from the common stock shareholders who are paid last in case of dissolution of the Starbucks business.
Dunkin Brands Group, Inc. (DNKN)
The stock prices of DNKN have been increasing over the months. This has increased the capital base of the company. The stock growth rate has been an average of 15%. The stock price increase was an action caused by the increase in revenues which have grown by 5% in the current financial period. There has been a gross margin increase from 86.49% to 86.78% whereas the net margin of the company gas increased by 4.2%. The DNKN brands do not have preferred shareholders in their share stock market. The dividends have yielded a 2.17% income on the share capital. There was a growth in the revenue by 8.1%. There was an increase in the full year earnings by the company which ranged between 1.87 per share and 1.91 per share as compared to the previous financial statement which was ranging from $1.87 and $ 1.83 per share. The tremendous growth was driven by the positivity in their attitude as part of their organizational culture. This attracted many customers in their branches thus increasing their revenue.
Coach, Inc. (COH)
The stock prices of .
A bold attempt to address compensation related questions of those trying to make the leap from large corporations to young startups. Having mentored many such transitions, I thought I would put general guidelines out there, but this is not a ready-reckoner by any means.
In a competitive world we often look to track records as a measure of skill. For example, doctors with better previous patient outcomes are expected to perform better with future patients than doctors with worse previous
outcomes. The same holds true of attorneys and their clients. Investors often mistakenly apply the same reasoning to ‘active’
money managers. Whether they are well-known staid mutual fund managers or high flying, headline seeking hedge fund managers, investors often assume that money managers with great track records are skillful and so can continuously
outperform the market.
Agency talent churn is coming. The Great Recession has bred hordes of restless agency staffers. These valuable people are getting ready to seek better jobs.
Here are some thoughts on addressing this problem.
Equity-Investment Analyst who have been working in the financial markets for over 35 years. A University of Pennsylvania Wharton School of Business Graduate, an Investment and Financial leader on Capital Hill in Washington, DC and 20 years of financial modeling and analysis consulting experience. I am a teacher, a mentor and accomplished businessman eager to share my experience, and helpful advice
After twelve (12) years, your business is wildly successful with m.docxgalerussel59292
After twelve (12) years, your business is wildly successful with multiple locations throughout the region. You are now ready to think really big. You want to purchase a huge competitor. (Note: You determine whether the competitor is a privately or publicly held company.) To expand, you will need additional capital from the debt or equity market, or both.
Write a five to seven (5-7) page paper in which you:
1. Use one (1) of the valuation techniques identified in Chapters 10 and 11 to calculate the value of the competitor you wish to purchase. Note: You will have to make assumptions; however, your assumptions need to be rationally supported.
2. Analyze the various financial tools available to you to determine the tools that will be most helpful in assessing whether your company can afford to purchase the competitor. Support your response.
Imagine you can indeed afford to purchase the competitor; however, you will need an additional $100 million.
3. Examine the options available to you to finance the competitor through the debt market, recommending the best alternative as a result of your analysis. Provide support for your recommendation.
4. Examine the options available to you to finance the competitor through the equity market, recommending the best alternative as a result of your analysis. Provide support for your recommendation.
5. Conduct a cross comparison of your debt and equity examinations to determine where to ideally obtain the additional $100 million funding needed to make the purchase and the approach that you would take to securing the funds. Provide support for your recommendation.
Your assignment must follow these formatting requirements:
· Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
· Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
The specific course learning outcomes associated with this assignment are:
· Apply the fundamentals of entrepreneurial financing.
· Examine the equity approach to valuing a new venture.
· Analyze the venture capital process.
· Compare and contrast different types of entrepreneurial financing.
· Examine and discuss security structures.
· Use technology and information resources to research issues in financing entrepreneurships.
· Write clearly and concisely about financing entrepreneurships using proper writing mechanics.
Assignment 4: Financing an Expansion 1
Assignment 4: Financing an Expansion 2
Assignment 4: Financing an ExpansionName UniversityFIN 317December 14, 2014
Prof. name
FINANCING AN EXPANSION
No doubt this is a profitable business destined to continue being so as it makes a great effort to pr.
Valuation of Startups [with limitation of traditional valuation approach] Nitin Pahilwani
Valuation of Startups [with limitation of traditional valuation approach]
1. Introduction…
2. Factors affecting Start-up Valuation…
3. Limitation of Traditional Valuation Method…
4. Start-up Valuation Method…
a. Venture Capital Method…
b. Berkus Method…
c. Scorecard Method…
d. Risk Factor Simulation Method…
e. First Chicago Method…
5. Closing the Valuation Gap…
Valuation of Startups [with limitation of traditional valuation approach] N Pahilwani & Associates
Valuation of Startups [with limitation of traditional valuation approach]
1. Introduction…
2. Factors affecting Start-up Valuation…
3. Limitation of Traditional Valuation Method…
4. Start-up Valuation Method…
a. Venture Capital Method…
b. Berkus Method…
c. Scorecard Method…
d. Risk Factor Simulation Method…
e. First Chicago Method…
5. Closing the Valuation Gap…
Running head STOCK PERFORMANCE AND EQUITY INVESTMENTS1STOCK .docxagnesdcarey33086
Running head: STOCK PERFORMANCE AND EQUITY INVESTMENTS 1
STOCK PERFORMANCE AND EQUITY INVESTMENTS 4
Stock Performance and Equity Investments
Toni Stewart
Rasmussen College
Author Note
This paper is being submitted on September 6, 2015 for Professor Roundtree’s B230/FIN1000 Principles of Finance course.
Stock Performance and Equity Investments
Investors and stock analysts use the price earnings ratios and the performance of the stock to determine whether the pricing for the stock is average and profitable for both parties. Economists argue that the average price earnings ratios for a stock can help in predicting the performance of the stock of interest (Hafer, 2007). The trends in the past performance can be compared to the current situation to make predictions on investment. This report analyzes the performance of the five stocks selected.
Starbucks Corp (SBUX)
The past performance may not indicate the future success of a business. The Starbucks stock valuation is improving with the SBUX trading at 30 times the forward its earnings. This is a tremendous result which shows a much more expensive than its average for a five year plan which is 25 times. The share prices have increased over the past few months. This has been caused by the increased number of customers in their shops which increase their capital structure. The high tech plans for SBUX delivery plan that has been put into place has juiced up the sales of the coffee shop. This has been a great focus on the changing technology by the company. The promising technology has prompted investors to venture and buy shares from the market thus increasing the demand of the SBUX shares. The preferred shareholders in the SBUX are compensated first in case of any business decision of dissolving it. This differentiates them from the common stock shareholders who are paid last in case of dissolution of the Starbucks business.
Dunkin Brands Group, Inc. (DNKN)
The stock prices of DNKN have been increasing over the months. This has increased the capital base of the company. The stock growth rate has been an average of 15%. The stock price increase was an action caused by the increase in revenues which have grown by 5% in the current financial period. There has been a gross margin increase from 86.49% to 86.78% whereas the net margin of the company gas increased by 4.2%. The DNKN brands do not have preferred shareholders in their share stock market. The dividends have yielded a 2.17% income on the share capital. There was a growth in the revenue by 8.1%. There was an increase in the full year earnings by the company which ranged between 1.87 per share and 1.91 per share as compared to the previous financial statement which was ranging from $1.87 and $ 1.83 per share. The tremendous growth was driven by the positivity in their attitude as part of their organizational culture. This attracted many customers in their branches thus increasing their revenue.
Coach, Inc. (COH)
The stock prices of .
Running Head: FINANCIAL ANALYSIS
1
FINANCIAL ANALYSIS
7
Financial Analysis
Students Name
Institutional Affiliation
Executive summaryThis report created from the financial statements of The Coca-Cola Company (KO) provides an analysis and evaluation of the actual and the prospective liquidity, profitability and the financial stability of the company. The methods that have been used in the analysis include trend analysis, the vertical analysis and the horizontal analysis. Also we have used certain analysis such as Quick ratio, debt ratio, and the current ratios. More calculations that have been used includes the returns on the owners equity, the earning per share, net operating working capital, total operating capital, net operating capital, net operating profit after taxes, operating cash flow and free cash flow. A result from the data reveals that, all the company ratios are above the industries averages. Comparative performance is good in the area of the liquidity, credit control and inventory management.
The report finds that the tidings for the company are positive in the near future. The major areas of weakness highlighted require further investigation and immediate action by management. The recommendations that were provided include;
· Improving the average accounts receivable collection period,
· Raising/ increasing the inventory turnover and reduction of prepayments in order to have enough operating cash for the subsequent periods.
The investigation in this report also had its shortcomings that arose and are highlighted as;
The forecasted figures used are estimates that sometimes maybe arbitrate; we also cannot fully provide data on the position of other companies with the data limitation we have experienced. The monthly details would have given us more information from which we could base a proper in year trend analysis, rather than the blanket whole year analysis provided. Though we had the above mentioned strain in preparation of this report, we still great belief that the analysis provided is best suited to show the standing of the Coca-Cola Company (KO).
In the financial report below, the strengths, weakness, opportunity and threats have been highlighted as we analyze the various financial sub segments.
Identify your company, its industry, and analyze the important segments (percentage of sales or subsidiaries) of your company compared to its industry and its overall business
The Coca-Cola Company (KO) is a multinational American Company that has its headquarters at Atlanta Georgia. The company has got its branches in more than 200 countries in the world and majority of its sales is in America, amounting to 40% of the total sales. The company operates in the non alcoholic beverage industry made up of the following companies as the main rivals, Dr Pepper Snapple Group, Inc, Nestle and Pepsi Inc. the company is the best performer in market capitalization compared to competitors with a capitalization of 169.49billion, higher .
General Electric 14General ElectricFinanc.docxbudbarber38650
General Electric 14
General Electric
Financial Analysis
Nicole Henry
EXECUTIVE SUMMARY
General Electric has been in business for over a century now and the inception of the dynamo has been the key to one of the largest global names. The company has been able to financially provide for the electrical and then today in the financial sector as well. This is reflected in the financial position of the company which has performed in the double digits during tough times. When analyzing the financial position of the company, it is evident that the performance that the company had been gaining for over a period has now started seeing a settlement impact. This means that the growth perspective that the company was seeing over the last couple of years have now subsided. The impact of growth is visible in the current year where the company’s financial position took a dip. Although the dip is the settlement of the exceeding performance; and has a subsided impact from the financial crunch in the previous decade around the globe.
ANALYSIS OVERVIEW
In order to analyze a company which has its operations in different business factions there are certain questions that need to be raised. The first question is that with such a gigantic business across the globe, is it feasible to break the financial analysis on a business wise or is the company feasible to be analyzed in a single entity perspective. The perspective reveals that the company analyzes its performance as a single entity and hence all the stakeholders are considered under a single arena. Thence, the review has to be taken in the single entity perspective. Along with this, there is a portion of performance review which is to set the trends for the future. The perspective cannot be taken as the downward trend, but this has to be taken as a moving average of the recent years. The financial analysis will reveal what factions of the company underperformed and led to a decrease in the financial position. The financial ratios used in the study reveal the position and performance of the company in the perspective of how each pillar has performed. This ratio analysis will also be an intricate combination of the businesses of the company to augment each pillar.
ASSUMPTIONS
The basis for carrying out the financial analysis for the company involves the changing trends of the company and the industry itself. Although the company’s financial positions appear to present strong performance, the underlying belief is that the company is now in a position where the product and service demand is increasing. Connecting the dots, the company is carrying out the sales with controlled receivables. The assumption set here is that the company’s growth in sales trends for products and services is not driven through increasing credit exposure. Along with this, there is an increased trend for cost hikes. This is assumed to be driven from the pricing positions in the market and the underlying costs requir.
Seminar: Gender Board Diversity through Ownership NetworksGRAPE
Seminar on gender diversity spillovers through ownership networks at FAME|GRAPE. Presenting novel research. Studies in economics and management using econometrics methods.
Yes of course, you can easily start mining pi network coin today and sell to legit pi vendors in the United States.
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+12349014282
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What website can I sell pi coins securely.DOT TECH
Currently there are no website or exchange that allow buying or selling of pi coins..
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Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and resell to these crypto whales and holders of pi..
This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the what'sapp contact of my personal pi merchant to trade with.
+12349014282
Lecture slide titled Fraud Risk Mitigation, Webinar Lecture Delivered at the Society for West African Internal Audit Practitioners (SWAIAP) on Wednesday, November 8, 2023.
2. Elemental Economics - Mineral demand.pdfNeal Brewster
After this second you should be able to: Explain the main determinants of demand for any mineral product, and their relative importance; recognise and explain how demand for any product is likely to change with economic activity; recognise and explain the roles of technology and relative prices in influencing demand; be able to explain the differences between the rates of growth of demand for different products.
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the what'sapp contact of my personal pi vendor
+12349014282
Turin Startup Ecosystem 2024 - Ricerca sulle Startup e il Sistema dell'Innov...Quotidiano Piemontese
Turin Startup Ecosystem 2024
Una ricerca de il Club degli Investitori, in collaborazione con ToTeM Torino Tech Map e con il supporto della ESCP Business School e di Growth Capital
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just what'sapp this number below. I sold about 3000 pi coins to him and he paid me immediately.
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how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
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Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
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How can i find a pi vendor/merchant?
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How to get verified on Coinbase Account?_.docxBuy bitget
t's important to note that buying verified Coinbase accounts is not recommended and may violate Coinbase's terms of service. Instead of searching to "buy verified Coinbase accounts," follow the proper steps to verify your own account to ensure compliance and security.
4. was granted the equivalent of roughly 1% of the company’s outstanding stock, or 1,000,000 shares. With
the expansion of value of the company, Jane has a paper fortune of $1.5 million.
But that’s just it: it’s all paper, it’s all in private company stock. With any luck the company will have a
big liquidity event in an additional five years. That’s five years of private company stock volatility, which
Jane is not happy to bear. To quantify Jane’s discomfort, we can run a simple calculation using time (five
years) and volatility (let’s assume 70%) as inputs. Using a protective put methodology, today’s value of a
$1.60 stock with a five year lockup is $0.74, a 54% discount to its current fair market value.5
Naturally, Jane would prefer to convert the $1.5 million of illiquid value into cash, and move the cash
into a basket of diversified investments, including real estate (read: pay down mortgage) and education
(read: schooling for the kids). Possibly – I would argue likely – a portion of this capital would be invested
in new entrepreneurial startups; perhaps her own new company. Without early liquidity for early
“investors of human capital” like Jane, all of this value is unnecessarily locked up in the illiquid equity of
the private company.
This cycle of entrepreneurship is well recognized in the world of tech startups. It’s one reason that, after
so many ups‐and‐downs in the private company market, private company stock options came to be
considered essentially valueless for employees, except in the most exceptional cases.
Troubled Angels
The same is true with investors of financial capital. It turns out that some investors are very good at
picking winners at their earliest stages of development. Many investors are not comfortable with that
level of risk, and prefer to invest later in a company’s maturation. Still more investors wait until a
company has achieved greater scale and its risk profile is further reduced. The deepest pools of capital,
including mutual funds and hedge funds, play in the public markets where “mid‐cap” companies of
greater than $10 billion equity value and “large‐cap” companies of greater than $30 billion in equity
value attract a massive portion of the world’s investment dollars. But for those early‐stage investment
5
The protective put methodology calculates the cost of a put option to protect the value of a stock position for a
given period of time under given volatility assumptions. In this case, purchasing a put to protect the $1.60 value for
five years would cost $0.86. Purchasing such a put would wipe out more than half of the stock’s value.
4
8. Inception Early Stage Mezzanine Public Market Mature US Gov’t
Revenue Profit Long‐Term Long‐Term
Milestone: Concept “Risk‐Free”
Growth Growth Competitiveness Sustainability
Cost of Capital: >50% 30% ‐ 50% <30% ~10% <10% <2%
The DCF model is conceptually simple. The basic premise is that a dollar in the hand today is worth more
than a dollar promised tomorrow. To construct a model showing how much less tomorrow’s dollar is
worth, one must discount tomorrow’s dollar by a certain cost of capital. As described above, cost of
capital is derived by examining the risk of a given venture relative to other potential investments. A
company raising money at inception may only attract investment from investors if they can show that
every dollar invested today will result in 50% growth in value of that dollar, year‐over‐year, until exit.
In the illustration below, an investor is willing to finance the company’s negative free cash flow by
investing $500,000 in year one, $525,000 in year two, $1,050,000 in year three, and $150,000 in year
four as the company finally approaches cash‐flow breakeven. At the end of year five, after the company
has turned a significant profit, the company intends to sell itself for 1.5x revenues, or $6,000,000. These
cash flows yield a 50.7% internal rate of return. In other words, the company promises that every dollar
invested will experience compounded annual growth of over 50%. That is quite an attractive investment,
if you believe the company’s forecasts. But what is the risk that this company will not achieve its
forecasts? In this case, we can conclude that the risk is equivalent to a 50% discount rate. Another way
of putting it is that the company’s cost of capital is 50%.
8
11. Two years later, the company closes on its Preferred B financing of $7.5 million at $0.50 per share, an
“up round” with 100% appreciation in stock price. Now the cap table looks like this:
We are now three full years into the venture. After two more years, and with a mezzanine round of
growth capital on the horizon, it could be said that Angelo is feeling fatigued; so are the early
employees. Recall our prior discussion regarding early stage specialists – founder, investors, and
marketing ninjas alike are beginning to tire of this adventure. In order to consider the possibility of
cashing out early investors, we must consider the value of their equity.
Value Is Allocated According to the Capital Structure
Equity participants are divided among groups of investors according to their seniority. Much like debt
can be layered in senior, subordinate and unsecured classes, equity value is allocated according to
different security classes. Because the preferred stock gets preferential payouts upon liquidation (and in
this way somewhat functions like debt), liquidation tables must be created to describe how investors
will be paid out given certain liquidation scenarios. This exercise is called the allocation of equity value.
In this example, we’ll assume the first $10 million is allocated pari passu between the Series A and Series
B preferred stock:
11
13. The next $7.5 million, which takes the equity value to $0.50 per share (the same price as the last round
of financing) is split between the common and Series A preferred stock:
And every dollar thereafter is split pari passu between the Series A, Series B and common stock:
Thus, if the company’s total equity value is deemed to be $10 million, the preferred A is said to be worth
$0.25 per share, the preferred B worth $0.50 per share, and the common stock zero. The preferred
stock at a $0.25 value per share acts more like debt than equity, since they take all the value and the
common stock gets none. However, at a total equity value of $30 million, the common stock has caught
up to the preferred stock on a per share basis, and is now worth $0.67 per share.
13
14. A graphical display of the above may look like the following:
Exit… Stage Left
Which brings us back to the cornerstone question: at what point will early employees and investors crave
liquidity? Recall the below table, where time is represented on the X‐axis and exit valuations are represented
on the Y‐axis. When one views the below table in the context of a discounted cash flow model, and the time‐
value of money, 60 quarters of time starts to look like an eternity for someone expecting a 50% IRR.
Exit Zone
Mid‐stage
liquidity
Early employee
& angel liquidity
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17. Meanwhile, the board of directors, representing all stakeholders, may wish to swap out the angel
investors with new, long‐term investors eager to participate in the company’s forecast growth. In the
end, a transaction of this kind does very little to impact the ownership structure of the company:
A transaction of this type impacts the structure and dynamics of the company in the following ways:
Founders and management are partially rewarded for their efforts.
o Vested stock options may be sold. By definition, this is only a small portion (or none at
all) of recently hired employees, and possibly a greater portion (up to 100%) of
founders’ stock. The pressure to exit is thus reduced materially, which is often viewed
positively in the same way that patient investors are viewed.
o Early stage specialists are given the economic freedom to invest their time and capital in
their next ventures.
Angels are partially or wholly rewarded for the risks they took at the formation of the company,
and this capital is re‐deployed into the entrepreneurial landscape.
New investors are allowed exposure to private companies at attractive pre‐IPO valuations. This
is an exciting area of investment for many investors, where risk‐adjusted returns can be high.
Companies have the opportunity to remove fatigued investors and employees (known as “dead
cap”) from the cap table in exchange for new, long‐term investors eager to participate in the
company’s forecast growth.
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18. As discussed before, new investors at this stage of investment require a reduced IRR due
o
to the reduced risks associated with the company. In our example, an IRR of 25% is a
meaningful difference from the expensive capital the company acquired at its founding.
o Replacing dead cap with patient capital is nearly always viewed in a positive light.
The board of directors remains unchanged. Control still rests with the preferred stock investors.
Other Exits Not Available8
David Weild and Edward Kim, two senior advisors at Grant Thornton Capital Markets and former
NASDAQ executives, have analyzed the causes of the current IPO crisis in two subsequent white papers.
In their papers, Why are IPOs in the ICU? and Market Structure is Causing the IPO Crisis, Weild and Kim
identify regulatory and technological shifts that have irreversibly altered the market for IPOs, including
the near disappearance of VC‐backed IPOs after the dot‐com bust of 2000 and the telecom bust of 2001.
The disappearance of smaller IPOs has directly led to longer times to exit, termed the IPO Gap:
Online brokerages, decreases in brokers’ spreads, and decimalization reduced the profitability of
providing investment research and liquidity for smaller stocks – two critical elements for small‐cap,
recently public firms. These structural changes provided an antagonistic environment to smaller IPOs
and, by extension, to a great many venture‐backed IPOs.
The Role of Private Company Liquidity in the US Economy
As the IPO window for companies with equity values between $100 million and $1 billion has been
effectively shut, and as M&A activity has not provided an equivalent volume of exit options, there are an
increasing number of attractive companies growing through the small cap valuation range as private
companies. Without a viable secondary market for private company stock, these companies are holding
hostage countless fatigued early‐stage specialists, investors and employees alike.
8
Drean and Hege, “The Secondary Private Markets – New Players in the Venture Capital Ecosystem,” École des
Hautes Études Commerciales de Paris, 2011.
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