Venture Capital Investments
Lifecycle
Called as a further issue of shares, valuation of VC’s investments is compulsory by registered valuer[Section 62(1)(c)]. The average age of Company raising Series A funding is 3 to 4 years. Overvalued companies at Seed Level may end up in a death trap as VCs may not proceed with Series A and Series B funding. This is because VCs do not get 2x or 3x returns from their investment at Seed Level. Hence, identifying realistic valuation at all levels of funding is a crucial part. Here, the value (science) facilitates the pricing (transaction).
Venture Capital Investments
Lifecycle
Called as a further issue of shares, valuation of VC’s investments is compulsory by registered valuer[Section 62(1)(c)]. The average age of Company raising Series A funding is 3 to 4 years. Overvalued companies at Seed Level may end up in a death trap as VCS may not proceed with Series A and Series B funding. This is because VCs do not get 2x or 3x returns from their investment at Seed Level. Hence, identifying realistic valuation at all levels of funding is a crucial part. Here, value (science) facilitatespricing (transaction).
Buy Side
- Greater Uncertainty = Greater Risk = Greater Required Returns = Lower Asset Value
- How to quantify impact of crisis on revenues, supply chain, and operations?
- Identification of Comparable Companies that are ‘good proxy’
- Is multiple based on ‘Maintainable Earnings’ & ‘Maintainable Revenue’?
- What is possibility of Debt Covenant Breach?
- Scenario Analysis and What if Scenarios
Sell Side
- Fair Value does not equal to ‘Fire Sale Price’
- How to identify price in orderly transaction?
- Avoiding ‘Double Dip’
- Use of Historical Multiples (LTM) Vs. Forward Looking Multiples (NTM)
- Absence of actively traded prices of unlisted entities
- Defending Values in volatile & dislocated markets
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Possibility of failure
Small revenues and operating losses
Existence of ESOP
Valuation Complexities
Private entity (non-comparable listed entities
Heavy R&D expenses
Young companies with short histories
Analysing potential to survive