《A Note on Valuation of Venture Capital Deals - HBS Case》.pdf

t s CASE : E-95 DATE: 03/14/01 (REVíD 04/20/06) o A NOTE ON VALUATION OF VENTURE CAPITAL DEALS P When times are mysterious serious numbers are eager to please. óMusician, Paul Simon, in the lyrics to his song When Numbers Get Serious r In this note, I discuss some of the fundamental issues of valuation in venture capital deals. The topics discussed are not necessarily limited to venture capital backed companies, but they o frequently surface in entrepreneurial companies that are financed either by venture capitalists or other private equity investors. In section 1, I introduce the so-called venture capital method. This is really a simple net present y value (NPV) method that takes the perspective of the investor instead of the firm. This method has the advantage of extreme simplicity, but it makes many strong assumptions that limit its usefulness. I focus on three main issues in the remaining sections. In section 2, I examine the p problem of determining the terminal value. In section 3,