Business Plan Preparation Frank Moyes College of Business
Business Plan Preparation Frank Moyes College of Business and Administration University of Colorado Boulder, Colorado Venture Capital Method of Valuation 1
Required Return on Investment ROI z Seed z Start-Up z Early Stage z Second Stage z Third Stage z Bridge 80%+ 60% 50% 40% 30% 25% 5 yr. Increase z 19 x z 10 x z 8 x z 5 x z 4 x z 3 x Bygraves & Zacharakis Venture Capital Method of Valuation 2
Venture Capital Method Key Assumptions z Net Profit z Valuation Multiple 4 Price/Earnings 4 Price/Revenue 4 Price/EBITDA 4 Price/Seller’s Discretionary Earnings z Investor ROI Venture Capital Method of Valuation 3
Venture Capital Method Mountain Unicycles Investment Exit year Revenue Net profit (10%) Venture Capital Method of Valuation $1 million 5 th year $20 million $2 million 4
Venture Capital Method Mountain Unicycles Investment Exit year Revenue Net profit (10%) Growth Rate P/E multiple Company value Venture Capital Method of Valuation $1 million 5 th year $20 million $2 million 20% 15 x ? 5
Venture Capital Method Mountain Unicycles Investment Exit year Revenue Net profit (10%) Growth Rate P/E multiple Company value Venture Capital Method of Valuation $1 million 5 th year $20 million $2 million 20% 15 x $30 million 6
Venture Capital Method Mountain Unicycles Investment Exit year Revenue Net profit (10%) Growth Rate P/E multiple Equity value Required ROI Required Increase Required $ value Venture Capital Method of Valuation $1 million 5 th year $20 million $2 million 20% 15 x $30 million ? 7
Venture Capital Method Mountain Unicycles Investment Exit year Revenue Net profit (10%) Growth Rate P/E multiple Company value Required ROI Required Increase Required $ value Venture Capital Method of Valuation $1 million 5 th year $20 million $2 million 20% 15 x $30 million 60% ? 8
Venture Capital Method Mountain Unicycles Investment Exit year Revenue Net profit (10%) Growth Rate P/E multiple Company value Required ROI Required Increase Required $ value Venture Capital Method of Valuation $1 million 5 th year $20 million $2 million 20% 15 x $30 million 60% 10 x ? 9
Venture Capital Method Mountain Unicycles Investment Exit year Revenue Net profit (10%) Growth Rate P/E multiple Company value Required ROI Required Increase Required $ value % of company required Venture Capital Method of Valuation $1 million 5 th year $20 million $2 million 20% 15 x $30 million 60% 10 x $10 million ? 10
Venture Capital Method Mountain Unicycles Investment Exit year Revenue Net profit (10%) Growth Rate P/E multiple Company value Required ROI Required Increase Required $ value % of company required Pre-money valuation Post-money valuation Venture Capital Method of Valuation $1 million 5 th year $20 million $2 million 20% 15 x $30 million 60% 10 x $10 million 33% ? ? 11
Venture Capital Method Mountain Unicycles Investment Exit year Revenue Net profit (10%) Growth Rate P/E multiple Company value Required ROI Required Increase Required $ value % of company required Pre-money valuation Post-money valuation Venture Capital Method of Valuation $1 million 5 th year $20 million $2 million 20% 15 x $30 million 60% 10 x $10 million 33% $2 million $3 million 12
Venture Capital Method Mountain Unicycles Investment Exit year Revenue Net profit (10%) Growth Rate P/E multiple Company value Required ROI Required Increase Required $ value % of company required Pre-money valuation Post-money valuation Venture Capital Method of Valuation $1 million 5 th year $20 million $2 million 20% 15 x $30 million 60% 10 x $10 million 33% $2 million $3 million $1 million 5 th year $20 million $ 2 million 30% ? ? ? ? 13
Venture Capital Method Mountain Unicycles Investment Exit year Revenue Net profit (10%) Growth Rate P/E multiple Company value Required ROI Required Increase Required $ value % of company required Pre-money valuation Post-money valuation Venture Capital Method of Valuation $1 million 5 th year $20 million $2 million 20% 15 x $30 million 60% 10 x $10 million 33% $2 million $3 million $1 million 5 th year $20 million $ 2 million 30% 20 x ? ? ? 14
Venture Capital Method Mountain Unicycles Investment Exit year Revenue Net profit (10%) Growth Rate P/E multiple Company value Required ROI Required Increase Required $ value % of company required Pre-money valuation Post-money valuation Venture Capital Method of Valuation $1 million 5 th year $20 million $2 million 20% 15 x $30 million 60% 10 x $10 million 33% $2 million $3 million $1 million 5 th year $20 million $ 2 million 30% 20 x $40 million 60% 10 x ? ? 15
Venture Capital Method Mountain Unicycles Investment Exit year Revenue Net profit (10%) Growth Rate P/E multiple Company value Required ROI Required Increase Required $ value % of company required Pre-money valuation Post-money valuation Venture Capital Method of Valuation $1 million 5 th year $20 million $2 million 20% 15 x $30 million 60% 10 x $10 million 33% $2 million $3 million $1 million 5 th year $20 million $ 2 million 30% 20 x $40 million 60% 10 x $10 million 25% ? ? 16
Venture Capital Method Mountain Unicycles Investment Exit year Revenue Net profit (10%) Growth Rate P/E multiple Company value Required ROI Required Increase Required $ value % of company required Pre-money valuation Post-money valuation Venture Capital Method of Valuation $1 million 5 th year $20 million $2 million 20% 15 x $30 million 60% 10 x $10 million 33% $2 million $3 million $1 million 5 th year $20 million $ 2 million 30% 20 x $40 million 60% 10 x $10 million 25% $3 million $4 million 17
Venture Capital Method Mountain Unicycles Investment Exit year Revenue Net profit (10%) Growth Rate P/E multiple Company value Required ROI Required Increase Required $ value % of company required Pre-money valuation Post-money valuation Venture Capital Method of Valuation $1 million 5 th year $20 million $2 million 20% 15 x $30 million 60% 10 x $10 million 33% $2 million $3 million $1 million 5 th year $20 million $1 million 10% ? 18
Venture Capital Method Mountain Unicycles Investment Exit year Revenue Net profit (10%) Growth Rate P/E multiple Company value Required ROI Required Increase Required $ value % of company required Pre-money valuation Post-money valuation Venture Capital Method of Valuation $1 million 5 th year $20 million $2 million 20% 15 x $30 million 60% 10 x $10 million 33% $2 million $3 million $1 million 5 th year $20 million $1 million 10% 10 x ? 19
Venture Capital Method Mountain Unicycles Investment Exit year Revenue Net profit (10%) Growth Rate P/E multiple Company value Required ROI Required Increase Required $ value % of company required Pre-money valuation Post-money valuation Venture Capital Method of Valuation $1 million 5 th year $20 million $2 million 20% 15 x $30 million 60% 10 x $10 million 33% $2 million $3 million $1 million 5 th year $20 million $1 million 10% 10 x $10 million ? ? ? 20
Venture Capital Method Mountain Unicycles Investment Exit year Revenue Net profit (10%) Growth Rate P/E multiple Company value Required ROI Required Increase Required $ value % of company required Pre-money valuation Post-money valuation Venture Capital Method of Valuation $1 million 5 th year $20 million $2 million 20% 15 x $30 million 60% 10 x $10 million 33% $2 million $3 million $1 million 5 th year $20 million $1 million 10% 10 x $10 million 60% 10 x $10 million ? ? ? 21
Venture Capital Method Mountain Unicycles Investment Exit year Revenue Net profit (10%) Growth Rate P/E multiple Company value Required ROI Required Increase Required $ value % of company required Pre-money valuation Post-money valuation Venture Capital Method of Valuation $1 million 5 th year $20 million $2 million 20% 15 x $30 million 60% 10 x $10 million 33% $2 million $3 million $1 million 5 th year $20 million $1 million 10% 10 x $10 million 60% 10 x $10 million 100% ? ! 22
Venture Capital Method Key Assumptions z Net Profit z P/E Multiple z Investor ROI Venture Capital Method of Valuation 23
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