Valuing Early Stage and Venture Backed Companies

Preface

Early stage company valuation is unique in the overall sphere of business valuation. Early stage companies often lack the traditional valuation metrics of cash flow, earnings, or even revenue at times. Without these metrics, traditional discounted cash flow models and comparison to public markets or private transactions take on less relevance, and a more “experiential” valuation approach is called for. Familiarity with the venture capital industry and its investment practices is critical to a well-reasoned early stage company valuation. In 2004, the American Institute of Certified Public Accountants published a practice aid known as Valuation of Privately-Held-Company Equity Securities Issued as Compensation. During the past five years, this practice aid has become the “go-to” publication to learn about early stage company valuations, given the dearth of alternative treatises. Since some of these newer and unique valuation methodologies were introduced in 2004, however, the techniques have been refined, improved, and challenged in practice.

To address these refinements and improvements, this book, Valuing Early Stage and Venture-Backed Companies, provides a detailed, hands-on guide to value early stage companies, along with broad fundamental data on the venture capital industry. It provides detailed analyses of unique early stage company valuation approaches along with examples of generally accepted allocation models that address complex capital structures so common to ...