Business Plan Preparation

Frank Moyes
College of Business and Administration
University of Colorado
Boulder, Colorado

Venture Capital Method of Valuation 1

 0

Required Return on
Investment
5 yr.
ROI Increase
❚ Seed 80%+ ❚ 19x
❚ Start-Up 60% ❚ 10x
❚ Early Stage 50% ❚ 8x
❚ Second Stage 40% ❚ 5x
❚ Third Stage 30% ❚ 4x
❚ Bridge 25% ❚ 3x

Bygraves & Zacharakis

Venture Capital Method of Valuation 2

Venture Capital Method
Key Assumptions

❚ Net Profit
❚ Valuation Multiple
l Price/Earnings
l Price/Revenue
l Price/EBITDA
l Price/Seller’s Discretionary Earnings
❚ Investor ROI

Venture Capital Method of Valuation 3

Venture Capital Method
Mountain Unicycles
Investment $1 million
Exit year 5th year
Revenue $20 million
Net profit (10%) $2 million

Venture Capital Method of Valuation 4

Venture Capital Method
Mountain Unicycles
Investment $1 million
Exit year 5th year
Revenue $20 million
Net profit (10%) $2 million
Growth Rate 20%
P/E multiple 15x
Company value ?

Venture Capital Method of Valuation 5

Venture Capital Method
Mountain Unicycles
Investment $1 million
Exit year 5th year
Revenue $20 million
Net profit (10%) $2 million
Growth Rate 20%
P/E multiple 15x
Company value $30 million

Venture Capital Method of Valuation 6

Venture Capital Method
Mountain Unicycles
Investment $1 million
Exit year 5th year
Revenue $20 million
Net profit (10%) $2 million
Growth Rate 20%
P/E multiple 15x
Equity value $30 million
Required ROI ?
Required Increase
Required $ value

Venture Capital Method of Valuation 7

Venture Capital Method
Mountain Unicycles
Investment $1 million
Exit year 5th year
Revenue $20 million
Net profit (10%) $2 million
Growth Rate 20%
P/E multiple 15x
Company value $30 million
Required ROI 60%
Required Increase ?
Required $ value

Venture Capital Method of Valuation 8

Venture Capital Method
Mountain Unicycles
Investment $1 million
Exit year 5th year
Revenue $20 million
Net profit (10%) $2 million
Growth Rate 20%
P/E multiple 15x
Company value $30 million
Required ROI 60%
Required Increase 10x
Required $ value ?

Venture Capital Method of Valuation 9

Venture Capital Method
Mountain Unicycles
Investment $1 million
Exit year 5th year
Revenue $20 million
Net profit (10%) $2 million
Growth Rate 20%
P/E multiple 15x
Company value $30 million
Required ROI 60%
Required Increase 10x
Required $ value $10 million
% of company required ?

Venture Capital Method of Valuation 10

Venture Capital Method
Mountain Unicycles
Investment $1 million
Exit year 5th year
Revenue $20 million
Net profit (10%) $2 million
Growth Rate 20%
P/E multiple 15x
Company value $30 million
Required ROI 60%
Required Increase 10x
Required $ value $10 million
% of company required 33%
Pre-money valuation ?
Post-money valuation ?
Venture Capital Method of Valuation 11
Venture Capital Method
Mountain Unicycles
Investment $1 million
Exit year 5th year
Revenue $20 million
Net profit (10%) $2 million
Growth Rate 20%
P/E multiple 15x
Company value $30 million
Required ROI 60%
Required Increase 10x
Required $ value $10 million
% of company required 33%
Pre-money valuation $2 million
Post-money valuation $3 million
Venture Capital Method of Valuation 12
Venture Capital Method
Mountain Unicycles
Investment $1 million $1 million
Exit year 5th year 5th year
Revenue $20 million $20 million
Net profit (10%) $2 million $ 2 million
Growth Rate 20% 30%
P/E multiple 15x ?
Company value $30 million ?
Required ROI 60% ?
Required Increase 10x ?
Required $ value $10 million ?
% of company required 33% ?
Pre-money valuation $2 million ?
Post-money valuation $3 million ?
Venture Capital Method of Valuation 13
Venture Capital Method
Mountain Unicycles
Investment $1 million $1 million
Exit year 5th year 5th year
Revenue $20 million $20 million
Net profit (10%) $2 million $ 2 million
Growth Rate 20% 30%
P/E multiple 15x 20x
Company value $30 million ?
Required ROI 60% ?
Required Increase 10x ?
Required $ value $10 million
% of company required 33%
Pre-money valuation $2 million
Post-money valuation $3 million
Venture Capital Method of Valuation 14
Venture Capital Method
Mountain Unicycles
Investment $1 million $1 million
Exit year 5th year 5th year
Revenue $20 million $20 million
Net profit (10%) $2 million $ 2 million
Growth Rate 20% 30%
P/E multiple 15x 20x
Company value $30 million $40 million
Required ROI 60% 60%
Required Increase 10x 10x
Required $ value $10 million ?
% of company required 33% ?
Pre-money valuation $2 million ?
Post-money valuation $3 million ?
Venture Capital Method of Valuation 15
Venture Capital Method
Mountain Unicycles
Investment $1 million $1 million
Exit year 5th year 5th year
Revenue $20 million $20 million
Net profit (10%) $2 million $ 2 million
Growth Rate 20% 30%
P/E multiple 15x 20x
Company value $30 million $40 million
Required ROI 60% 60%
Required Increase 10x 10x
Required $ value $10 million $10 million
% of company required 33% 25%
Pre-money valuation $2 million ?
Post-money valuation $3 million ?
Venture Capital Method of Valuation 16
Venture Capital Method
Mountain Unicycles
Investment $1 million $1 million
Exit year 5th year 5th year
Revenue $20 million $20 million
Net profit (10%) $2 million $ 2 million
Growth Rate 20% 30%
P/E multiple 15x 20x
Company value $30 million $40 million
Required ROI 60% 60%
Required Increase 10x 10x
Required $ value $10 million $10 million
% of company required 33% 25%
Pre-money valuation $2 million $3 million
Post-money valuation $3 million $4 million
Venture Capital Method of Valuation 17
Venture Capital Method
Mountain Unicycles
Investment $1 million $1 million
Exit year 5th year 5th year
Revenue $20 million $20 million
Net profit (10%) $2 million $1 million
Growth Rate 20% 10%
P/E multiple 15x ?
Company value $30 million
Required ROI 60%
Required Increase 10x
Required $ value $10 million
% of company required 33%
Pre-money valuation $2 million
Post-money valuation $3 million
Venture Capital Method of Valuation 18
Venture Capital Method
Mountain Unicycles
Investment $1 million $1 million
Exit year 5th year 5th year
Revenue $20 million $20 million
Net profit (10%) $2 million $1 million
Growth Rate 20% 10%
P/E multiple 15x 10x
Company value $30 million ?
Required ROI 60%
Required Increase 10x
Required $ value $10 million
% of company required 33%
Pre-money valuation $2 million
Post-money valuation $3 million
Venture Capital Method of Valuation 19
Venture Capital Method
Mountain Unicycles
Investment $1 million $1 million
Exit year 5th year 5th year
Revenue $20 million $20 million
Net profit (10%) $2 million $1 million
Growth Rate 20% 10%
P/E multiple 15x 10x
Company value $30 million $10 million
Required ROI 60% ?
Required Increase 10x ?
Required $ value $10 million ?
% of company required 33%
Pre-money valuation $2 million
Post-money valuation $3 million
Venture Capital Method of Valuation 20
Venture Capital Method
Mountain Unicycles
Investment $1 million $1 million
Exit year 5th year 5th year
Revenue $20 million $20 million
Net profit (10%) $2 million $1 million
Growth Rate 20% 10%
P/E multiple 15x 10x
Company value $30 million $10 million
Required ROI 60% 60%
Required Increase 10x 10x
Required $ value $10 million $10 million
% of company required 33% ?
Pre-money valuation $2 million ?
Post-money valuation $3 million ?
Venture Capital Method of Valuation 21
Venture Capital Method
Mountain Unicycles
Investment $1 million $1 million
Exit year 5th year 5th year
Revenue $20 million $20 million
Net profit (10%) $2 million $1 million
Growth Rate 20% 10%
P/E multiple 15x 10x
Company value $30 million $10 million
Required ROI 60% 60%
Required Increase 10x 10x
Required $ value $10 million $10 million
% of company required 33% 100%
Pre-money valuation $2 million ?!
Post-money valuation $3 million ?!
Venture Capital Method of Valuation 22
Venture Capital Method
Key Assumptions

❚ Net Profit
❚ P/E Multiple
❚ Investor ROI

Venture Capital Method of Valuation 23