the venture capital method valuation of venture capital deals the basic venture capital method with...
TRANSCRIPT
The Venture Capital Method
Valuation of Venture Capital Deals The Basic Venture Capital Method
with Required Rate of Return
The Basic Venture Capital Method
Step 1: Determine the post-money valuation
Step 2: Determine the pre-money valuation
Step 3: Determine the ownership fraction
Step 4: Obtain the number of shares
Step 5: Obtain the prices of shares
Take aways:
This method shows the minimum of what the investor must have of shares in order to get the money back…
It is a sophisticated method that divides the emerging values (in the company) between the parties…
NB! The actual split is not driven by the venture capital method, but is a result of the negotiation process…
It is the parties relative negotiation strength that is the actual economic determinant of the actual valuation…
The valuation method is however important as the method contribute with both the qualitative and quantitative bases for the negotiation process…
This means:
Given the discount rate, and the number of years to exit, it is the amount of your actual capital asking, and the terminal value that determines if - and to what extent you will receive funding. Your asking, and the timing of it, also have an effect on how many shares (the size of the ownership) you will retend
NB! All these factors are negotiable!