Valuation is of central importance to seed and early stage companies.
All valuations become part of a company's public history, as well as a reflection of its founders' and investors' view of its future. Valuations during the early years of a company are commonly performed rather informally which may cause unforeseen problems and heartache, when least expected or desired.
As we pioneer mission-critical data aggregation and analyses for our client companies and the venture funding community, we believe we must also offer them access to services that provide realistic and insightful valuations.
Have an expert do it for you with Value Analytics & Design. The firm specializes in early stage, high growth, complex structure and other hard-to-value business entities and projects, where realism + insight really matter.
As independent valuation experts, we utilize a rigorous blend of best practices, custom research, advanced mathematics, and solid common sense to derive each estimate of value for events that have already occurred.
Just as important, we help our clients and their advisors understand, in advance, the value implications for their companies and projects of:
- A proposed liquidity event, stock option grant, or other transaction;
- Strategies for the company's intangible assets and intellectual capital;
- Contemplated or actual design, development, and operating choices;
- Owners' succession planning and wealth preservation strategies.
Whether ex post or ex ante, all our valuation advisory services are guided by our model: value + realism + insight » effective decision support.
Do it yourself with AlgoValue. The firm developed the service using advanced mathematics to handle the difficult computational and valuation challenges of complex capital structures and waterfall analysis. Our SaaS platform provides a suite of efficient, intuitive, accurate analytical tools that bring instant transparency, as well as real-time decision-support data output for valuation of the equity securities of private companies.
Our solution simplifies calculation complexities, eliminates costly errors resulting from numerous data entries from multiple sources, saves time and money, and improves the way illiquid equity investments are valued and managed.
AlgoValue is used by domestic and international valuation firms, accounting firms, venture capital firms, law firms, private companies and secondary market platforms.
The AngelList team at Venture Hacks provide a very helpful resource to help with the valuation process as well as expose some data visualization tools to show segmented break downs of the valuations for firms on their platform.
Use our free solutions at Fund Wisdom to help you find comparable companies and see their valuations across all of the platforms we work with.
An informal, but effective, way of keeping tabs on market position and future prospects is benchmarking it against peers and against the market through comparable analysis.
FundWisdom provides the following benchmarking services:
Instant, real-time, 24x7 access to the entire portfolio of investments in our platform.
Search capabilities to narrow the field by industry, geography, or other criteria.
Email alerts to find out about new comparable companies that have come online.
Net Present Value (NPV)
One can value a business by determing a value for the stream of cash it generates. Net Present value or discounted cash-flow analysis looks at how much cash the business generates each year, projects it into the future and then calculates the worth of that cash flow stream "discounted" using a discount rate, typically a long-term Treasury bill interest rate. The difficulty with this lies with the need to estimate the earnings for the next several years. Many startup firms have little to no revenue. This also brings up the importance of a good set of books, or the accouting recordings and procedures.
Discounted Net Cash Flow (DCF) analysis is another method of estimating company value. This method has three steps: Forecasting future net income; calculating future net cash flows from forecasted net income; and discounting each year's forecasted net cash flows back to present value using an appropriate rate of return. The valuation is the sum of the discounted net cash flows. While many startups have little to no history and the future is uncertain, reasonably realistic forecasting can be achieved with some thought and care.
Valuations to Support Transactions
Before entertaining a funding offer or engage in other material transactions, it is important to have a realistic picture of value and a solid understanding of what actually drives that value. Knowledge is power. High quality valuation knowledge will put you in a better position to negotiate, or to move on.
When building a company the capitalization table is an important consideration as it potentially changes over time. As the number of holders of equity and therefore the cap table grows, understanding the choices that affect the value of the company are integral. We can help quantify the effects of a single option or a combination of options on value. Valuation methods can help you do valuable scenario planning all through your company's life cycle.
Granting Stock Options
Stock options continue to be a coveted reward to team members and partners for their contribution to company success. However, it is necessary to determine the value of these securities in order to meet regulatory requirements. The rules allow informal valuations to be performed internally by the team or board if the company has been in business less than ten years, has issued no publicly-traded securities, and the person doing the valuation work has at least five years of relevant valuation or similar financial experience in the same line of business. This might save valuation fees today, but may cause burdensome tax exposure in the future.
We have built a network of professional valuation specialists who focus on this kind of work. More >