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By
Venture Planning Associates. Used by permission.
Reasons to Value
a Business
Information
Required
(maximum number of years possible)
→
3Ws of
Venture Investing
→
Venture Financing:
Key Documents
→
Startup Business Plan
|
Seven Valuation
Types
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Adjusted Net Assets
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Capitalization of Earnings
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Dividend Paying Capacity
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Excess Earnings: Return on Assets
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Excess Earnings: Return on Sales
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Discounted Cash Flow
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Discounted Future Earnings
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Combination Method Weighted Average of All
Types
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Conventional
Valuation with Variations
and Averaging
Generally,
Venture Planning Associates
offer programs that give the total business value,
however it may be
possible to value a portion of the stock, to add a discount or premium to
stock as well.
For an example of a conventional venture capital valuation with variations
see the chart below.
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Valuation Calculation
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Notes
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Best Case
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Worst Case
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Expected Case
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Base Year Revenue
|
User input |
$500,000 |
$500,000 |
$240,000
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Annual Growth %
|
User Input |
40% |
10% |
20%
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Ending Year Revenue
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Calculated |
$3,500,000 |
$1,440,000 |
$2,750,000
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Years to Harvest
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User Input |
5 |
5 |
5
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Target Year Revenue
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Calculated |
$3,500,000 |
$1,440,000 |
$2,750,000
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After Tax Profit %
|
User Input |
50% |
10% |
30%
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Target Year Profit
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Calculated |
$1,750,000 |
$275.000 |
$432,000
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Price/Earnings Multiple
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User Input |
12 |
12 |
12
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Future Value of Venture
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Calculated |
$21,000,000 |
$3,300,000 |
$5,184,000
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Required Annual Return %
|
Lookup * |
51.6% |
51.6% |
51.6%
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Present Value Factor
|
Lookup * |
0.132 |
0.132 |
0.0132
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Discounted Present Value
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Calculated |
$2,772,000 |
$435,600 |
$684,288
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Required Equity Investment
|
User Input |
$250,000 |
$250,000 |
$250,000
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Equity Sold/Purchased
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Calculated |
9.02% |
57.39% |
36.53%
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→
Profitability by Case
|
User Input |
10% |
50% |
40%
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Wtd. Ave of Scenarios
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Calculated |
percentage
stock to be sold = 44% |
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* NPV and P/E ratios
from data bank sources for your business type
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First Chicago Method
The First
Chicago Method is used to value venture type businesses by
Venture Capital firms.
High risk
ventures are usually valued using the First Chicago Method that evaluates
probabilities of success (IPO),
the sideways scenario, and the failure scenario (liquidation).
This
method uses a high-risk adjusted, discount rate and embodies many assumptions.
We
specialize in the First Chicago Method as a means of determining the pre and
post investment values for entrepreneurial (pre-IPO) business investments.
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