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12 Cards in this Set
- Front
- Back
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Modified VC Method
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An adjustment to the standard VC method where the analyst explicitly take account of management fees and carried interest
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Standard VC Method
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The main idea of this method is to estimate a value for the company conditional on a successful exit, and then discount that value back to the present using a high target rate of return
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VC Method of Valuation
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The name for a group of techniques used by VCs to make investment decisions; the two types are "Standard" and "Modified"
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Four Elements to VC Valuations
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(1) An estimate of exit valuation
(2) An estimate of the VC's target multiple of money (3) An estimate of the expected retention percentage between the current investment and a successful exit (4) The investment recommendation where the required investment in compared to the proposed ownership percentage of the total valuation |
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Exit Valuation
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The expected value of a portfolio company, conditional on a successful exit
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Successful Exit
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An exit where the company has executed on optimistic by reasonable expectation from the time of the VC investment; generally ends with an IPO or high-value acquistion
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Target Multiple of Money
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The average multiple of money that a VC expects in a successful exit
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Expected Retention Percentage
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The expected ownership after dilution upon future funding rounds
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Relative Valuation
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Finding a set of current companies that are comparable to a portfolio company at the time of its hypothetical successful exit
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Absolute Valuation
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Reflects the analyst's opinion by using a DCF model
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Partial Valuation
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The valuation of the fund's stake, using option pricing methods
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Steps to the Standard VC Method
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(1) What is the required investment today?
(2) What is the exit valuation for this company? (3) What is the target multiple on our investment? (4) What is the expected retention percentage? (5) Estimate the total valuation for the company today. (6) What is the proposed ownership percentage today? (7) Estimate the partial valuation for this investment. (8) Investment Recommendation: Compare the partial valuation to required investment |
