new venture valuation - the venture capital method
TRANSCRIPT
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
0 0 0 0
Step 1.
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
0 0 0 0 $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)
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
0 0 0 0 $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
Reference
http://ocw.mit.edu/courses/sloan-school-of-management/15-431-entrepreneurial-finance-
spring-2011/lecture-notes/MIT15_431S11_lec01.pdf