Understanding Valuation In Venture Capital | Part#1| Comps, Checklists & Score Card
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- เผยแพร่เมื่อ 4 ต.ค. 2024
- Understanding Valuation In Venture Capital - Comparables, Checklist & Score Card
Ever wondered how VCs arrive at Valuations for their portfolio companies - the startups they invest in? This is the series for you. I will discuss the various methodologies in a series of lectures; indeed there are few standards or benchmarks.
Today, I will start off by looking at 3 methods used by VC funds when revaluing their portfolio every quarter to report the fund performance to their investors or LPs.
When will they write their investments up? - When will they write them down?
And for further reading check out this report done with JADA FoF:
jada.com.sa/en...
Part 2 - here • Understanding Valuatio... expands on other methodologies
Part 3 will dive deeper. PLEASE SUBSCRIBE to the TH-cam channel to be notified on its publication.
BACKGROUND of the AUTHOR:
Professor Zeisberger has over 30 years of experience as a finance professional with deep expertise in private equity and venture capital, corporate venturing, and risk management.
As a Professor at INSEAD, the business school with campuses in Singapore, France, UAE and the US, she is a global citizen and award-winning author as well as an angel investor. She is a founding member of KKR’s Sustainable Expert Advisory Committee (SEAC) and sits on the Advisory Boards of Standard Chartered Ventures, Linzor Capital, BG Ventures and KaizenVest. Passionate about the future of education, she acts as a volunteer board advisor to Girl Rising, a non-profit focused on girls' education and empowerment.
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Thank you. Prof. Zeisberger is the mother Teresa of VC & PE. Hoping to see more videos on VC valuation. If we can get a window into how VCs evaluate & interpret the outputs from the numbers that would be great.
ok
Fantastic presentation, very well explained! 🙌
Glad you liked it! thanks
Very good and clear explanations!
Thank you professor 🙏
There are so many questions and practices brought by wannabe angels, emerging fund managers but not only, and this is the one often asked.
Excellent
@@claudiazeisberger perhaps a full mini series of videos on such questions is to be considered for the future 🙏
thanks for uploading! looking forward to the next episode
just launched
Interesting! However whats important to note is that if you want to be compliant with the most used reporting guidelines (IPEV), you will be required to use probability-weighted expected return method (PWERM), option pricing method (OPM), current value method (CVM) or a hybrid of scenario-based methods and OPM. Also very important are the local GAAP valuation standards for the yearly financial statements.
we interviewed VC fiunds - so yes above thats the theory. The reality is most VCs need to manage scarce resources. And need ot be realistic on what makes sense or not. All above mathematically correct - but reality? You are dealing with startups - not LBOs
@@claudiazeisberger agreed, however the mentioned valuation standards are the agreed ones in the LPAs, terms that GP put in. Imo GPs need to spend more time on drafting LPAs and put valuation terms they can meet. I have seen LPs trying to sue GPs because they didn't stick to their agreed valuation terms. It's a breach of contract.
You might want to re-read the latest guidelines. Here's what IPEV has to say about selecting valuation methods:
The Valuer should use one or more of the following Valuation Techniques as of each Measurement Date, taking into account Market Participant assumptions as to how Value would be determined: A. Market Approach a. Multiples (3.4) b. Industry Valuation Benchmarks (3.5) c. Available Market Prices (3.6) B. Income Approach a. Discounted Cash Flows (3.7, 3.8) C. Replacement Cost Approach a. Net Assets (3.9)
@@dngjr please also ready 3.10 onwards. There you will find what I am saying. It's for pre revenue companies as described in the video. Idk how to apply a DCF on a pre rev startup tbh. IPEV therefore is completely right to refer for different valuation methods.
My point is that most GPs agree on the IPEV guidelines in their LPAs without understanding the implications instead of adding their own valuation approach.
@@philipps1956 You can take a look at the full Equidam methodology, which is IPEV compliant, here: www.equidam.com/resources/Equidam-Valuation-Methodology.pdf
Professor Claudia, First of all thank you for taking out time and doing this series - really grateful and appreciate this . -Aloy.
I have one question - Do VC Fund overall performance creates any impact on portfolio company valuations
not reallly related. INvestee companies are seen as standalone. LPs care about the overall fund performance.
Thank you, Professor. I thoroughly enjoyed this video.
It got me thinking, however, about what the "valuation technique" should look like for a fund manager looking to invest in a PE/VC fund. My question arises from the recent increase in PE and VC funds in Africa, all of which seem to be emphasizing capital deployment, value addition, monitoring, impact, ESG, and %IRR for investors. What should be the deciding factor? How do we sift through the pipeline of investable funds?
.. as they should. THats a differnt story and this video does not address it
@@claudiazeisberger I will be looking forward to your lecture on that , Prof. thank you
Great video, thanks! I understand that in the scorecard method you're using a median valuation for your column 3, but what is the "perfect valuation" in the checklist method?
Hopefully, we'll be able to continue this discussion in class at Insead next year :)
Yes, correct - PERFECT is if a company gets the highestpossible score across all segments. (compared to peers)
@@claudiazeisberger Hi Claudia, I am very new to this concept but loved how well articulated this video is. I have the same doubt that @alexc344 has and that is how we decide the "perfect valuation". Is it something that we calculate from other metrics or financial ratios?
PS: I am an Incoming INSEADer (25D) looking forward to engaging in depth during the classes.
So clear! Question: checklist or scorecard, how do VCs/PE (if the same) figure out the founder & team's ability to execute? Is track record more powerful than the KornFerry/GH Smart assessments? Would love to learn VC/PE PoV here. Thank you, Claudia.
track record leads - no doubt.