You are previewing Valuing Early Stage and Venture Backed Companies.
O'Reilly logo
Valuing Early Stage and Venture Backed Companies

Book Description

Find out what your early stage business is really worth—and what you can do to increase its value even more

One of the most misconstrued concepts in business today, valuation has also rapidly become one of the most important for business owners in today's unpredictable financial atmosphere.

An experiential and practical guide drawn from author and valuation expert Neil Beaton's fifteen years of focused start-up work, Valuing Early Stage and Venture-Backed Companies equips you with a solid foundation of the ins and outs of early stage and venture-backed valuations—no matter what your field.

This step-by-step guide offers contributions from top valuation practitioners, walking you through:

  • New techniques for applying options methods

  • The pros and cons of the option pricing model

  • Early stage preferred stock rights

  • Applicable discounts for early stage companies

  • New procedures for implementing the probability-weighted expected returns method

  • Valuation theory, the consensus view on application, and the tools to apply them

  • The popular and widely used AICPA Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation

  • Valuing Early Stage and Venture-Backed Companies replaces bewildering computations with technical expertise to help you figure out what your business is really worth, and how you can increase that value starting today.

    Table of Contents

    1. Title Page
    2. Copyright Page
    3. Dedication
    4. Preface
    5. Acknowledgements
    6. About the Author
    7. CHAPTER 1 - Laying the Foundation
      1. A UNIQUE LANDSCAPE
      2. AN OVERVIEW OF THE VENTURE CAPITAL INDUSTRY
      3. CONCLUSION
    8. CHAPTER 2 - Understanding Early Stage Preferred Stock Rights
      1. STOCK RIGHTS
      2. CONTRACTUAL RIGHTS
      3. CONCLUSION
    9. CHAPTER 3 - Enterprise Valuation Approaches
      1. RELEVANCY OF TRADITIONAL VALUATION APPROACHES
      2. COST APPROACH
      3. MARKET APPROACH
      4. INCOME APPROACH
      5. “VECTORING” VALUATION APPROACH
      6. THE INCOME APPROACH AS AN OXYMORON
      7. CONCLUSION
    10. CHAPTER 4 - Application of the Option-Pricing Method in Allocating Enterprise Value
      1. IMPORTANT ASSUMPTIONS UNDERLYING THE OPTION-PRICING MODEL
      2. OPTION-PRICING METHOD STEPS IN APPLICATION
      3. OTHER CONSIDERATIONS IN THE OPTION-PRICING METHOD
      4. PROS AND CONS OF THE OPTION-PRICING METHOD
      5. CONCLUSION
    11. CHAPTER 5 - Application of the Probability-Weighted Expected Returns Method in Allocating Enterprise Value
      1. ILLUSTRATION OF THE PWERM
      2. PWERM CRITICAL ASSUMPTIONS
      3. OVERVIEW OF STOCK RIGHTS
      4. IDENTIFICATION OF OUTCOMES
      5. UPDATING PWERM ANALYSES
      6. CONCLUSION
    12. CHAPTER 6 - Applicable Discounts for Early Stage Companies
      1. BASIS OF DISCOUNTS
      2. SUGGESTED “CORRECTIONS” TO THE CURRENT USE OF PUT MODELS FOR QUANTIFYING DLOMS
      3. DILUTION DISCOUNT
      4. THE LIKELIHOOD OF LIQUIDITY
      5. CONCLUSION
    13. CHAPTER 7 - Advanced Valuation Topics for Early Stage Companies
      1. UTILIZING THE OPM AS A “VALUATION” METHODOLOGY
      2. SEQUENTIAL AND COMPOUND OPTIONS
      3. ALLOCATING THE RESIDUAL VALUE
      4. FURTHER EXTENSIONS FOR COMPOUND OPTIONS
      5. VENTURE CAPITAL RATES OF RETURN
      6. EXECUTIVE STOCK COMPENSATION
      7. CONCLUSION
    14. Appendix A - ALLOCATION OF ENTERPRISE VALUE USING THE OPTION-PRICING METHOD: TREATMENT OF DERIVATIVES ON COMMON STOCK
    15. Appendix B - VOLATILITY IN THE OPTION-PRICING MODEL
    16. Notes
    17. Index