Venture Capital（三）.pptVIP

Free template from Lecture 4:Valuation of the Opportunity / Business Financial Questions Is this a financially viable business? What will the likely returns be to the various stakeholders? What is the probable value of the business? What will the cash flows look like? How much funding is required? Financial Valuation Methods Comparables NPV Adjusted NPV Venture Capital Method Real Options Comparables Multiples – P/E, P/NAV, P/S etc. Problem: difficult to find info, especially on private deals. Fall-back: publicly traded equity. When valuing a non-listed business, apply a discount for: Liquidity. Corporate governance and under-regulation. Skills and resource issues (inexperience). Net Present Value (NPV) Cash flows - scenarios and timing. Typically cash inflows distant – most value in terminal value (TV). TVs – tricky to estimate, scenarios and ranges. Discount rates – WACC, using CAPM for cost of equity (re). Problem: need beta of comparable public firm. Changing capital structures and effective tax rates – WACC (constant assumption) inappropriate. Adjusted Present Value (APV) Appropriate where: Hybrid securities (neither debt nor equity). Changing capital structure. Assessed tax losses and tax rates. Sequence: Value cash flows at CAPM derived all-equity discount rate. Using (usually) pre-tax rate on debt, value (a) tax benefits of capital structure (interest payments), and (b) assessed tax losses. Subtract value of debt. Discount Rate and Beta Discount Rate: r = [(D/V) x re] + [(D/V) x rd x (1 – t)] V = E + D re = rf + β x (rm – rf) The Venture Capital Method Sequence: Forecast cash flows to equity for period. Predict exit point. Value exit price using multiple (based on public company or comparable transaction multiple). Discount cash flows at required RR. Determine own share of this value. Consider share option pools and follow-on funding rounds (dilutions) PE vs. Public Numbers Multiples: 20-30% liquidity discount vs.