Early stage companies continue to drive the attention of investors as an area of the market that offers enhanced potential rewards, as well as risk. Early stage enterprises (ESEs) can range from startups to multi-billion-dollar businesses that have yet to reach profitability. Despite their diversity, these companies have unique characteristics as a group that warrant special consideration in valuation. An ESE valuation should start from a vision of the company’s future. It requires a dynamic model which takes into account the change in the company’s operations and economic environment over time. The ability of the company to continue to access investor funding is also a critical factor in its success.
To coincide with the launch of my book Early Stage Valuation: A Fair Value Perspective, published by Wiley, I and a number of my colleagues involved regularly in early stage valuations will be examining a number of the recurring issues for both investors and corporations. These will include: DCF modelling for ESEs, calibration with option pricing models, the OPM back-solve method, Monte Carlo simulation in ESE valuation, modelling interest and dividend accruals in ESE valuation, valuation of ESE earnouts and clawbacks, valuation of intangible assets, and the venture capital method.
We will be posting these short, practical articles over the coming weeks and welcome your thoughts.
This authoritative guide examines how to apply market analysis, discounted cash flows models, statistical techniques such as option pricing models (OPM) and Monte Carlo simulation, the venture capital method and non-GAAP metrics to ESE valuation.