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1Venture Capital Method of Valuation
Business Plan PreparationBusiness Plan PreparationBusiness Plan PreparationBusiness Plan Preparation
Frank MoyesFrank MoyesCollege of Business and AdministrationCollege of Business and AdministrationUniversity of ColoradoUniversity of ColoradoBoulder, ColoradoBoulder, Colorado
2Venture Capital Method of Valuation
Required Return on Required Return on InvestmentInvestment
SeedSeed 80%+ 80%+ Start-UpStart-Up
60%60% Early Stage Early Stage
50%50% Second Stage 40%Second Stage 40% Third Stage 30%Third Stage 30% BridgeBridge
25%25%
ROI 5 yr.Increase
19x 19x 10x10x 8x8x 5x5x 4x4x 3x3x
Bygraves & Zacharakis
3Venture Capital Method of Valuation
Venture Capital Method Venture Capital Method Key AssumptionsKey Assumptions
Net ProfitNet Profit Valuation MultipleValuation Multiple
Price/EarningsPrice/Earnings Price/RevenuePrice/Revenue Price/EBITDAPrice/EBITDA Price/Seller’s Discretionary EarningsPrice/Seller’s Discretionary Earnings
Investor ROIInvestor ROI
4Venture Capital Method of Valuation
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain Unicycles
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain UnicyclesInvestmentInvestment $1 million$1 million
Exit yearExit year 5th year5th year
RevenueRevenue $20 million$20 million
Net profit (10%)Net profit (10%) $2 million$2 million
5Venture Capital Method of Valuation
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain Unicycles
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain UnicyclesInvestmentInvestment $1 million$1 million
Exit yearExit year 5th year 5th year
RevenueRevenue $20 million$20 million
Net profit (10%)Net profit (10%) $2 million$2 million
Growth RateGrowth Rate 20% 20%
P/E multipleP/E multiple 15x 15x
Company valueCompany value ? ?
6Venture Capital Method of Valuation
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain Unicycles
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain UnicyclesInvestmentInvestment $1 million$1 million
Exit yearExit year 5th year5th year
RevenueRevenue $20 million$20 million
Net profit (10%)Net profit (10%) $2 million$2 million
Growth RateGrowth Rate 20% 20%
P/E multipleP/E multiple 15x 15x
Company valueCompany value $30 million$30 million
7Venture Capital Method of Valuation
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain Unicycles
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain UnicyclesInvestmentInvestment $1 million$1 million
Exit yearExit year 5th year5th year
RevenueRevenue $20 million$20 million
Net profit (10%)Net profit (10%) $2 million$2 million
Growth RateGrowth Rate 20% 20%
P/E multipleP/E multiple 15x 15x
Equity valueEquity value $30 million$30 million
Required ROIRequired ROI ? ?
Required IncreaseRequired Increase
Required $ valueRequired $ value
8Venture Capital Method of Valuation
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain Unicycles
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain UnicyclesInvestmentInvestment $1 million$1 million
Exit yearExit year 5th year5th year
RevenueRevenue $20 million$20 million
Net profit (10%)Net profit (10%) $2 million$2 million
Growth RateGrowth Rate 20% 20%
P/E multipleP/E multiple 15x 15x
Company valueCompany value $30 million$30 million
Required ROIRequired ROI 60% 60%
Required Increase Required Increase ? ?
Required $ valueRequired $ value
9Venture Capital Method of Valuation
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain Unicycles
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain UnicyclesInvestmentInvestment $1 million$1 million
Exit yearExit year 5th year 5th year
RevenueRevenue $20 million$20 million
Net profit (10%)Net profit (10%) $2 million$2 million
Growth RateGrowth Rate 20% 20%
P/E multipleP/E multiple 15x 15x
Company valueCompany value $30 million$30 million
Required ROIRequired ROI 60% 60%
Required Increase Required Increase 10x 10x
Required $ valueRequired $ value ? ?
10Venture Capital Method of Valuation
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain Unicycles
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain UnicyclesInvestmentInvestment $1 million$1 million
Exit yearExit year 5th year 5th year
RevenueRevenue $20 million$20 million
Net profit (10%)Net profit (10%) $2 million$2 million
Growth RateGrowth Rate 20% 20%
P/E multipleP/E multiple 15x 15x
Company valueCompany value $30 million$30 million
Required ROIRequired ROI 60% 60%
Required Increase Required Increase 10x 10x
Required $ valueRequired $ value $10 million$10 million
% of company required% of company required ? ?
11Venture Capital Method of Valuation
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain Unicycles
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain UnicyclesInvestmentInvestment $1 million$1 million
Exit yearExit year 5th year 5th year
RevenueRevenue $20 million$20 million
Net profit (10%)Net profit (10%) $2 million$2 million
Growth RateGrowth Rate 20% 20%
P/E multipleP/E multiple 15x 15x
Company valueCompany value $30 million$30 million
Required ROIRequired ROI 60% 60%
Required Increase Required Increase 10x 10x
Required $ valueRequired $ value $10 million$10 million
% of company required% of company required 33% 33%
Pre-money valuationPre-money valuation ? ?
Post-money valuationPost-money valuation ? ?
12Venture Capital Method of Valuation
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain Unicycles
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain UnicyclesInvestmentInvestment $1 million$1 million
Exit yearExit year 5th year 5th year
RevenueRevenue $20 million$20 million
Net profit (10%)Net profit (10%) $2 million$2 million
Growth RateGrowth Rate 20% 20%
P/E multipleP/E multiple 15x 15x
Company valueCompany value $30 million$30 million
Required ROIRequired ROI 60% 60%
Required Increase Required Increase 10x 10x
Required $ valueRequired $ value $10 million$10 million
% of company required% of company required 33% 33%
Pre-money valuationPre-money valuation $2 million$2 million
Post-money valuationPost-money valuation $3 million$3 million
13Venture Capital Method of Valuation
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain Unicycles
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain UnicyclesInvestmentInvestment $1 million$1 million $1 million$1 million
Exit yearExit year 5th year 5th year 5th year5th year
RevenueRevenue $20 million$20 million $20 million$20 million
Net profit (10%)Net profit (10%) $2 million$2 million $ 2 million$ 2 million
Growth RateGrowth Rate 20% 20% 30% 30%
P/E multipleP/E multiple 15x 15x ? ?
Company valueCompany value $30 million$30 million ? ?
Required ROIRequired ROI 60% 60% ? ?
Required Increase Required Increase 10x 10x ? ?
Required $ valueRequired $ value $10 million$10 million ? ?
% of company required% of company required 33% 33% ? ?
Pre-money valuationPre-money valuation $2 million$2 million ? ?
Post-money valuationPost-money valuation $3 million$3 million ? ?
14Venture Capital Method of Valuation
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain Unicycles
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain UnicyclesInvestmentInvestment $1 million$1 million $1 million$1 million
Exit yearExit year 5th year 5th year 5th year5th year
RevenueRevenue $20 million$20 million $20 million$20 million
Net profit (10%)Net profit (10%) $2 million$2 million $ 2 million$ 2 million
Growth RateGrowth Rate 20% 20% 30% 30%
P/E multipleP/E multiple 15x 15x 20x 20x
Company valueCompany value $30 million$30 million ? ?
Required ROIRequired ROI 60% 60% ? ?
Required Increase Required Increase 10x 10x ? ?
Required $ valueRequired $ value $10 million$10 million
% of company required% of company required 33% 33%
Pre-money valuationPre-money valuation $2 million$2 million
Post-money valuationPost-money valuation $3 million $3 million
15Venture Capital Method of Valuation
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain Unicycles
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain UnicyclesInvestmentInvestment $1 million$1 million $1 million$1 million
Exit yearExit year 5th year 5th year 5th year5th year
RevenueRevenue $20 million$20 million $20 million$20 million
Net profit (10%)Net profit (10%) $2 million$2 million $ 2 million$ 2 million
Growth RateGrowth Rate 20% 20% 30% 30%
P/E multipleP/E multiple 15x 15x 20x 20x
Company valueCompany value $30 million$30 million $40 million $40 million
Required ROIRequired ROI 60% 60% 60% 60%
Required Increase Required Increase 10x 10x 10x 10x
Required $ valueRequired $ value $10 million$10 million ? ?
% of company required% of company required 33% 33% ? ?
Pre-money valuationPre-money valuation $2 million$2 million ? ?
Post-money valuationPost-money valuation $3 million$3 million ? ?
16Venture Capital Method of Valuation
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain Unicycles
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain UnicyclesInvestmentInvestment $1 million$1 million $1 million$1 million
Exit yearExit year 5th year 5th year 5th year5th year
RevenueRevenue $20 million$20 million $20 million$20 million
Net profit (10%)Net profit (10%) $2 million$2 million $ 2 million$ 2 million
Growth RateGrowth Rate 20% 20% 30% 30%
P/E multipleP/E multiple 15x 15x 20x 20x
Company valueCompany value $30 million$30 million $40 million $40 million
Required ROIRequired ROI 60% 60% 60% 60%
Required Increase Required Increase 10x 10x 10x 10x
Required $ valueRequired $ value $10 million$10 million $10 million$10 million
% of company required% of company required 33% 33% 25% 25%
Pre-money valuationPre-money valuation $2 million$2 million ? ?
Post-money valuationPost-money valuation $3 million$3 million ? ?
17Venture Capital Method of Valuation
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain Unicycles
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain UnicyclesInvestmentInvestment $1 million$1 million $1 million$1 million
Exit yearExit year 5th year 5th year 5th year5th year
RevenueRevenue $20 million$20 million $20 million$20 million
Net profit (10%)Net profit (10%) $2 million$2 million $ 2 million$ 2 million
Growth RateGrowth Rate 20% 20% 30% 30%
P/E multipleP/E multiple 15x 15x 20x 20x
Company valueCompany value $30 million$30 million $40 million $40 million
Required ROIRequired ROI 60% 60% 60% 60%
Required Increase Required Increase 10x 10x 10x 10x
Required $ valueRequired $ value $10 million$10 million $10 million$10 million
% of company required% of company required 33% 33% 25% 25%
Pre-money valuationPre-money valuation $2 million$2 million $3 million $3 million
Post-money valuationPost-money valuation $3 million$3 million $4 million $4 million
18Venture Capital Method of Valuation
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain Unicycles
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain UnicyclesInvestmentInvestment $1 million$1 million $1 million$1 million
Exit yearExit year 5th year 5th year 5th year5th year
RevenueRevenue $20 million$20 million $20 million$20 million
Net profit (10%)Net profit (10%) $2 million$2 million $1 million$1 million
Growth RateGrowth Rate 20% 20% 10% 10%
P/E multipleP/E multiple 15x 15x ? ?
Company valueCompany value $30 million$30 million
Required ROIRequired ROI 60% 60%
Required Increase Required Increase 10x 10x
Required $ valueRequired $ value $10 million$10 million
% of company required% of company required 33% 33%
Pre-money valuationPre-money valuation $2 million$2 million
Post-money valuationPost-money valuation $3 million$3 million
19Venture Capital Method of Valuation
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain Unicycles
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain UnicyclesInvestmentInvestment $1 million$1 million $1 million$1 million
Exit yearExit year 5th year 5th year 5th year5th year
RevenueRevenue $20 million$20 million $20 million$20 million
Net profit (10%)Net profit (10%) $2 million$2 million $1 million$1 million
Growth RateGrowth Rate 20% 20% 10% 10%
P/E multipleP/E multiple 15x 15x 10x 10x
Company valueCompany value $30 million$30 million ? ?
Required ROIRequired ROI 60% 60%
Required Increase Required Increase 10x 10x
Required $ valueRequired $ value $10 million$10 million
% of company required% of company required 33% 33%
Pre-money valuationPre-money valuation $2 million$2 million
Post-money valuationPost-money valuation $3 million$3 million
20Venture Capital Method of Valuation
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain Unicycles
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain UnicyclesInvestmentInvestment $1 million$1 million $1 million$1 million
Exit yearExit year 5th year 5th year 5th year5th year
RevenueRevenue $20 million$20 million $20 million$20 million
Net profit (10%)Net profit (10%) $2 million$2 million $1 million$1 million
Growth RateGrowth Rate 20% 20% 10% 10%
P/E multipleP/E multiple 15x 15x 10x 10x
Company valueCompany value $30 million$30 million $10 million $10 million
Required ROIRequired ROI 60% 60% ? ?
Required Increase Required Increase 10x 10x ? ?
Required $ valueRequired $ value $10 million$10 million ? ?
% of company required% of company required 33% 33%
Pre-money valuationPre-money valuation $2 million$2 million
Post-money valuationPost-money valuation $3 million$3 million
21Venture Capital Method of Valuation
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain Unicycles
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain UnicyclesInvestmentInvestment $1 million$1 million $1 million$1 million
Exit yearExit year 5th year 5th year 5th year5th year
RevenueRevenue $20 million$20 million $20 million$20 million
Net profit (10%)Net profit (10%) $2 million$2 million $1 million$1 million
Growth RateGrowth Rate 20% 20% 10% 10%
P/E multipleP/E multiple 15x 15x 10x 10x
Company valueCompany value $30 million$30 million $10 million $10 million
Required ROIRequired ROI 60% 60% 60% 60%
Required Increase Required Increase 10x 10x 10x 10x
Required $ valueRequired $ value $10 million$10 million $10 million $10 million
% of company required% of company required 33% 33% ? ?
Pre-money valuationPre-money valuation $2 million$2 million ? ?
Post-money valuationPost-money valuation $3 million$3 million ? ?
22Venture Capital Method of Valuation
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain Unicycles
Venture Capital MethodVenture Capital Method
Mountain UnicyclesMountain UnicyclesInvestmentInvestment $1 million$1 million $1 million$1 million
Exit yearExit year 5th year 5th year 5th year5th year
RevenueRevenue $20 million$20 million $20 million$20 million
Net profit (10%)Net profit (10%) $2 million$2 million $1 million$1 million
Growth RateGrowth Rate 20% 20% 10% 10%
P/E multipleP/E multiple 15x 15x 10x 10x
Company valueCompany value $30 million$30 million $10 million $10 million
Required ROIRequired ROI 60% 60% 60% 60%
Required Increase Required Increase 10x 10x 10x 10x
Required $ valueRequired $ value $10 million$10 million $10 million $10 million
% of company required% of company required 33% 33% 100% 100%
Pre-money valuationPre-money valuation $2 million$2 million ?! ?!
Post-money valuationPost-money valuation $3 million$3 million ?! ?!
23Venture Capital Method of Valuation
Venture Capital Method Venture Capital Method Key AssumptionsKey Assumptions
Net ProfitNet Profit P/E MultipleP/E Multiple Investor ROIInvestor ROI
