Venture Capital Method
The Venture Capital method values a company based on investor returns. It estimates the future exit value and discounts it to present at a high rate based on required VC returns. This method provides a quick valuation based on exit potential.
Venture Capital Method
Estimating Future Exit Value
- Exit value is calculated as last year's projected EBITDA multiplied by an industry EBITDA multiple
- Assumes the company gets acquired or goes public at the end of projections.
- We source industry EBITDA multiples annually from Prof. Aswath Damodaran's database.
Discounting the Exit Value
- The exit value is discounted back to present at a high discount rate.
- Discount rate depends on the company's current stage of development.
- Rates based on research of VC expected returns, timing, dilution.
- Accounts for required investor ROI at exit.
Ignoring Interim Cash Flows
- Method ignores projected cash flows during the forecast period.
- Focuses solely on estimating the future exit value.
- Suitable for early stage companies with limited financial history.
Determining Total Valuation
Total valuation = Discounted exit value
Provides a quick estimate of current value based on future potential exit value
Commonly used for early stage companies raising VC funding
