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Venture Capital Valuation: Case Studies and Methodology, + Website

Book Description

Real-world case studies clarify valuation principles to help readers maximize returns

When founders, VCs, angels, attorneys, CFOs, CEOs, and employees don't understand the true meanings of "value" and "valuation," they end up losing money—lots of money. Venture Capital Valuation is for anyone involved in a venture capital- or angel-backed private company who wants to get the most out of their investments by controlling one of the few things they can when dealing with high-velocity, risky investments: their understanding of valuation.

Lorenzo Carver, author and developer of the #1 selling, award-winning small-business valuation solution software, shares his decades of experience simplifying the high-growth company valuation process for clients in every business sector. Anchored by scores of high-profile examples, Venture Capital Valuation deftly illustrates how stakeholders in a given startup or high-growth company could have improved their outcomes by having better information about valuation.

Helping readers answer such vital valuation questions as "What's this company worth?" "Is this a fair valuation?" and "Are we leaving too much money on the table?" Venture Capital Valuation dissects the valuation profiles of some of today's leading corporations, including:

  • Facebook

  • Twitter

  • LinkedIn

  • Microsoft

  • Yahoo!

  • Kayak.com

  • Zogenix

  • Plus, interviews with venture-backed company valuation experts Jeff Faust, Josh Cashman, and Joe Orlando

  • A companion website allows readers to access and download additional material mentioned throughout the text.

    Don't wait until it's too late. Learn how "value" changes rights to cash flow at every stage of a company's evolution with Venture Capital Valuation.

    Note: The ebook version does not provide access to the companion files.

    Table of Contents

    1. Cover
    2. Series
    3. Title Page
    4. Copyright
    5. Acknowledgments
    6. INTRODUCTION: What You Don't Know About Valuation Will Cost You Money
      1. WHAT THIS BOOK IS ABOUT AND WHOM IT IS FOR
      2. MY PERSPECTIVE ON VALUATION AND THIS BOOK'S SETUP
      3. DID YOU KNOW EMPLOYEES LOSE $1 BILLION EACH MONTH DUE TO OVERVALUED (UNDERWATER) OPTIONS?
      4. ABOUT THE COMPANION WEB SITE
    7. CHAPTER 1: Using Facebook, Twitter, and LinkedIn to Explain VC Valuation Gains and Losses
      1. DID VALUATION IGNORANCE COST CONNECTU (AND THE WINKLEVOSSES) $50MM?
      2. AN EXPERT DOESN'T NEED A 409A VALUATION WHEN HE OR SHE HAS A CERTIFICATE AND BASIC MATH
      3. VALUING FACEBOOK'S COMMON STOCK COMPARED TO PREFERRED STOCK IN MINUTES
      4. WHAT THE WINKLEVOSSES WOULD HAVE SEEN IN ANY 409A VALUATION REPORT
      5. DERIVING A DISCOUNT FOR LACK OF MARKETABILITY FOR VALUATIONS
      6. FACEBOOK AT $80 BILLION VALUATION VERSUS ENRON AT $80 BILLION VALUATION
      7. DEAL TERMS, WATERFALLS, AND THE PRE-MONEY MYTH
      8. THE PRE-MONEY MYTH
      9. SUMMARY
    8. CHAPTER 2: Should Venture-Backed Companies Even Consider a DCF Model?
      1. ZOGENIX: COMPANY BACKGROUND SUMMARY AND HIGHLIGHTS
      2. LEAPING FORWARD JUST 20 MONTHS, THE COMPANY FILES FOR AN IPO
      3. ORDER OF VALUATIONS PRESENTED IN THIS CASE
    9. CHAPTER 3: Valuation Methods versus Allocation Methods Regarding Zogenix
      1. SEPARATING ENTERPRISE VALUE FROM THE ALLOCATION OF THAT VALUE
      2. VALUING TOTAL EQUITY
      3. USING FUTURE VALUE (FV) AND PRESENT VALUE (PV) TO VALUE FUTURE CASH FLOWS TODAY
      4. SUMMARY
    10. CHAPTER 4: Applying the Typical DCF Model to a Venture-Backed Company Hardly Ever Works
      1. THE GORDON GROWTH MODEL
      2. HIGH GROWTH LIMITS THE GORDON GROWTH MODEL
      3. DIVIDEND IRRELEVANCE AND CAPITAL STRUCTURE IRRELEVANCE
      4. USING COMPARABLES (GENERALLY MARKET MULTIPLES) TO GENERATE A TERMINAL VALUE
      5. ACTUAL DIFFERENCES BETWEEN ANGELS AND VCS VERSUS PERCEIVED DIFFERENCES
      6. APPLYING VALUATION METHODS AND ALLOCATION METHODS AT INCEPTION
      7. SUMMARY
    11. CHAPTER 5: “Enterprise Value” + “Allocation Methods” = Value Destruction
      1. MOST 409A VALUATIONS UNDERVALUE THE COMPANY AND SIMULTANEOUSLY OVERVALUE EMPLOYEE STOCK OPTIONS
      2. DID AUDITORS DRIVE VALUATORS TO OVERVALUE EMPLOYEE STOCK OPTIONS?
      3. MOST 409A ENTERPRISE VALUE CALCULATIONS IGNORE THE “TAKEOVER” VALUE OF PREFERRED
      4. THE REALISTIC RANGE OF POSSIBILITIES DEPENDS ON WHO THE INVESTORS ARE
      5. OVERSTATING RETURNS AND UNDERSTATING RETURNS ON THE SAME ASSET (SIMULTANEOUSLY)
      6. WHAT HAPPENS TO FUND IRRS WHEN YOU ASSUME BOOK VALUE EQUALS MARKET VALUE?
      7. THE REAL COST OF FAIR VALUE, FAIR MARKET VALUE, AND ENTERPRISE VALUE
      8. YAHOO! CASE
    12. CHAPTER 6: Why You Should D.O.W.T. (Doubt) Venture Capital Returns—Option Pool Reserve
      1. UNISSUED OPTION POOLS
      2. VALUE CONCLUSION ELEMENTS IMPACTED BY OPTION POOL RESERVE ASSUMPTIONS
      3. IMPACT ON PARTIES RELYING ON ASSUMPTIONS OF VC INVESTMENTS
    13. CHAPTER 7: If Valuation Can't Make You Money, Do You Really Need It?
      1. APPLYING STUDIES TO REAL-WORLD CASES
      2. IMPORTANT QUESTIONS TO ASK
      3. SUMMARY
    14. CHAPTER 8: Don't Hate the Appraiser (Blame the Auditor Instead)
      1. INTERVIEW WITH JEFF FAUST, AVA
      2. SUMMARY
    15. CHAPTER 9: Don't Blame the Auditors (Blame the Practice Aid Instead)
      1. INTRODUCTION TO THE EXPERT PANELISTS
      2. THE AUDITOR'S VALUATION “BIBLE”
      3. SAS101 TESTS, PWERMS, AND OPMS
      4. PWERMS AND RNPV/ENPV MODELS
      5. SUBJECTIVITY AND THE PWERM (OR “power”) METHOD
      6. FINDING INPUTS FOR THE OPM MODEL
      7. ENTERPRISE VALUES VERSUS ALLOCATIONS
      8. NEXT ROUND PRICING AND TOPIC 820
      9. DIFFERENT WAYS OF TREATING GRANTED, UNVESTED, AND RESERVED OPTIONS
      10. VALUING WARRANTS IN VENTURE-BACKED COMPANIES
      11. QUANTIFYING QUALITATIVE INPUTS TO VALUE CONCLUSIONS FOR VC-FUNDED COMPANIES
      12. DISCOUNTS FOR LACK OF MARKETABILITY (DLOM) AND VENTURE-FUND PORTFOLIOS
      13. SHARESPOST, SECONDMARKET AS MARKET INPUTS
      14. SUMMARY
    16. CHAPTER 10: Now That You Understand Venture Capital Valuation, Share It
    17. About the Author
    18. Index