Venture Capital Valuation E-Book

Lorenzo Carver

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Finance Editions
• Sprache: Englisch

Seitenzahl: 443

Veröffentlichungsjahr: 2011

Beschreibung

Very few of the decision makers involved in a venture backed company have a definitive understanding of how valuation techniques are being applied to their financial statements and their decision making process. This casebook provides a quick and accurate road map on how valuation techniques used for tax, financial reporting and deal structure impact a company's past, present and future. The book includes real world case studies to simplify this complex subject for the practitioners serving companies, the founders and executives running the companies, and the investors that fund the companies.

Leseprobe

Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia, and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers' professional and personal knowledge and understanding.

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For a list of available titles, visit our Web site at www.WileyFinance.com.

Copyright 2012 by Lorenzo Carver. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, [phone], fax [phone], or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, [phone], fax [phone], or online at http://www.wiley.com/go/permissions.

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Library of Congress Cataloging-in-Publication Data:

Carver, Lorenzo, 1968–

Venture capital valuation : case studies and methodology / Lorenzo Carver. — 1

p. cm. — (Wiley finance series)

Includes index.

ISBN 978-0-470-90828-0 (hardback); ISBN 978-1-118-18232-1 (ebk);

ISBN 978-1-118-18233-8 (ebk); ISBN 978-1-118-18234-5 (ebk)

1. Venture capital—Case studies. 2. Valuation—Case studies. I. Title.

HG4751.C367 2012

658.15—dc23

2011037186

Acknowledgments

I'd like to thank God for giving me the time and wherewithal to write this book, John DeRemigis of John Wiley and Sons for suggesting I write it and making that happen, and my friends, family, clients, customers, and partners who put up with my efforts to get it done. Also, I'm grateful for Jennifer MacDonald’s, of John Wiley and Sons, patience as I tested ways to communicate a complex topic to a broader pool of beneficiaries than just valuation professionals.

Thanks to my immediate family, Sandra Carver, Lorenzo Carver Sr., Lester and Vanessa Carver, and Sandra and Todd Welch, Kaila, Jasmine, Victor, Veronica, Charity, Aaron, Avery, and Rachel.

Many of my friends, and all of my business partners, helped me with these efforts just by being themselves and having a passion for entrepreneurs and entrepreneurial finance as much as I do. But some of those were particularly instrumental in keeping me focused on this task or otherwise allowing me to focus on it by picking up the slack elsewhere. This list includes, but is not limited to, my friend and valuation partner Connie Yi, Esq. of Carver Yi, LLP, all my friends, partners, and shareholders at Liquid Scenarios, Inc., but especially Sacha Millstone, Alan Kaplan, Chris Svarczkopf, Michael Edwards, David Jilke, Tony Jones, Henry Wright, Alexey Gavrilov, Alexander Vinogradov, Eugene Mymrin, Manoj Biswas, Susan Jarvis, Sue Perrault, Tim Barlow, Claudine Schneider, KG Charles-Harris, Manish Jindal and Peter Fusaro, and my friends and fellow shareholders at Free409A/TapMyBooks, David Berkus and Eric Woo.

I also wish to thank my customers and clients, who have effectively subsidized my continuous education in this area over the past 20 years, especially my friends Mark Freedle, Frank Maresca, Sina Simantob, Jason Mendelson of Foundry Group, Jeff Donnan and Stephen Pouge of First Round Capital, Jack Genest, Sarah Reed and the finance team at Charles River Ventures, Harry D’Andrea of Valhalla Partners, Matt Potter of Delphi, and all other Liquid Scenarios Users, the thousands of small companies that have purchased BallPark Business Valuation and the millions that visited BulletProof Business Plans over the years.

INTRODUCTION

What You Don't Know About Valuation Will Cost You Money

How would you feel if you sold $2 million “worth” of Google stock and received $50 in cash instead of $2 million? This happens to venture-backed companies everyday and that's why understanding valuation is critical.

The terms “value” and “valuation” are used a lot for high-growth private companies and that's a bad thing. It's bad because when founders, VCs, angels, attorneys, CFOs, CEOs, and employees use these words and don't truly understand what they mean, those same people end up losing lots of money as a result.

Imagine you log in to your brokerage account. You see your 2,000 shares of Google valued at $2,000,000, place a market order to sell all 2,000 shares, and wait for it to clear. A few minutes later you get a confirmation that you sold 2,000 shares, received $0 in proceeds, and owe the brokerage firm $50.00 in commissions. A transaction you expected to put $2,000,000 in your pocket has instead effectively taken $2,000,050 out of your pocket. How would that make you feel? What would your spouse's reaction be? Most of us would experience a rapid increase in heart rate and an unpleasant feeling in our stomachs. The culmination of this fight-or-flight response would at least be a call to our broker to find out what happened to the other $2,000,000 (yours) and get it back.

Yet this same scenario plays out for real every day for VCs, founders, angels, limited partners, strategic investors, CEOs, CFOs and employees of high-growth companies and most people don't panic and don't feel the need to make a phone call. Why? Because they don't know what's happening to them until it's too late to do anything about it. This book represents an opportunity for those parties to stop losing money before it's too late to do anything about it, by understanding how “value” changes their rights to cash flow at every stage of a company's evolution.

WHAT THIS BOOK IS ABOUT AND WHOM IT IS FOR

In a broad sense, this book is for anyone who's involved with a venture capital- or angel-backed private company who wants to maximize his or her investment by controlling one of the few things you can when dealing with high-velocity, risky investments after you've committed: your understanding of valuation.

In many ways, valuing an early-stage venture-backed company (one that's received financing) is a lot easier than valuing a traditional privately held company. You would never know that by reading a 409A valuation report, looking at a certificate of incorporation, or viewing an investor rights agreement for a venture-funded company, though. While those venture deal complexities, which relate to rights and preferences for various securities and holders, are absent in the vast majority of traditional private companies, access to capital, networks, and long runways to the first meaningful customer are also absent in most traditional businesses. The result is that venture capital- and angel-backed company value is better measured in terms of volatility, as opposed to traditional private companies, which are generally more easily valued in terms of cash flow, or operating income benefit streams, in their early lives.