Venture Valuation: Context-specific Valuation

Question 1

What are the valuation steps in the venture Capital method?

Answer 1

1. Future value calculation
2. Present value calculation
3. VC share of ownership calculation
4. Future dilution compensation

Question 2

How is the future value calculated?

Answer 2

Based on multiples:
FV_T = M_PIi * PI_i,TC,T
Based on DCF terminal value:
(1b) FV_T = CFTE_T+1 / r // r: cost of equity
(1c) FV_T = CFTE_T * (1+g) / (r-g) // g: growth rate

Question 3

How is the present value calculated?

Answer 3

Post-money: PV_0,Post = FV_T / (1+r)^T // T: time of exit, r: target rate of return
Pre-money: PV_0,Pre = PV_0,Post - I // I: investment sum

Question 4

How is the desired share of ownership calculated?

Answer 4

SO = I / PV_0,Post // I: investment sum

Question 5

How is the retention rate calculated?

Answer 5

RET = SO_T / SO_0 = 1 - sumdilutive investors m

Question 6

How is the number and price of shares calculated?

Answer 6

New number of shares: NS = OS * SO_0 / (1-SO_0)

Price of new shares: P_NS = I / NS

Question 7

In the face of dilutive investors, how is the share of ownership to be demanded at time 0 (SO_0) calculated to reach a desired ownership of SO_T at time t?

Answer 7

SO_0 = SO_T / RET