Valuing Early Stage and Venture Backed Companies

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  • Edition: 1st
  • Format: Hardcover
  • Copyright: 2010-03-29
  • Publisher: Wiley
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Valuation of Early Stage Companies is an updated analysis and application of valuation theory for early stage companies with complex capital structures. The book shows the appropriate and defensible way to prepare and present business valuations with a strong emphasis on applications and models. This book dispels improper valuation techniques promulgated by unknowing business appraisers. It provides the valuation theory, the consensus view on application, and the tools to apply it. Strong emphasis is on applications and models versus pure theory. Chapters and procedures are contribute by top valuation experts.

Author Biography

Neil J. Beaton, CPA/ABV, CFA, ASA, is a nationally known business valuation expert and speaker on the valuation of early stage companies. He is the National Partner in Charge of Valuation Services for Grant Thornton, LLP, an international audit, tax, and financial advisory services firm. He has more than twenty-seven years of professional experience and is a recognized expert witness in state and federal courts as well as international tribunals. He has authored an AICPA publication on valuing stock options and intangible assets for financial reporting purposes.

Table of Contents

Prefacep. ix
Acknowledgmentsp. xi
About the Authorp. xiii
Laying the Foundationp. 1
A Unique Landscapep. 1
An Overview of the Venture Capital Industryp. 8
Conclusionp. 14
Understanding Early Stage Preferred Stock Rightsp. 17
Stock Rightsp. 19
Contractual Rightsp. 28
Conclusionp. 32
Enterprise Valuation Approachesp. 35
Relevancy of Traditional Valuation Approachesp. 35
Cost Approachp. 40
Market Approachp. 43
Income Approachp. 45
"Vectoring" Valuation Approachp. 46
The Income Approach as an Oxymoronp. 53
Conclusionp. 58
Application of the Option-Pricing Method in Allocating Enterprise Valuep. 59
Important Assumptions Underlying the Option-Pricing Modelp. 61
Option-Pricing Method Steps in Applicationp. 66
Other Considerations in the Option-Pricing Methodp. 86
Pros and Cons of the Option-Pricing Modelp. 87
Conclusionp. 88
Application of the Probability-Weighted Expected Returns Method in Allocating Enterprise Valuep. 89
Illustration of the PWERMp. 90
PWERM Critical Assumptionsp. 94
Overview of Stock Rightsp. 96
Identification of Outcomesp. 98
Updating PWERM Analysesp. 104
Conclusionp. 105
Applicable Discounts for Early Stage Companiesp. 107
Basis of Discountsp. 108
Suggested "Corrections" to the Current Use of Put Models for Quantifying DLOMsp. 114
Dilution Discountp. 119
The Likelihood of Liquidityp. 120
Conclusionp. 123
Advanced Valuation Topics for Early Stage Companiesp. 125
Utilizing the OPM as a "Valuation" Methodologyp. 127
Sequential and Compound Optionsp. 127
Allocating the Residual Valuep. 131
Further Extensions for Compound Optionsp. 137
Venture Capital Rates of Returnp. 139
Executive Stock Compensationp. 143
Conclusionp. 143
Allocation of Enterprise Value Using the Option-Pricing Method: Treatment of Derivatives on Common Stockp. 145
Volatility in the Option-Pricing Modelp. 155
Notesp. 175
Indexp. 179
Table of Contents provided by Ingram. All Rights Reserved.

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