We use a number of different valuation methodologies in our work, and typically choose those best suited to the particular investment in light of the available data and the quality of such data.

We also select valuation methodologies on the basis of the scope of work to be performed. Here some of our methods used, alone and in combination, for the benefit of our clients:

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Maximizing Value:

 

Valuation and sale is all about getting the maximum value from your organization.  A key step includes preparing a company to sell in order to earn that top valuation!  Getting a company in strategic, organizational and financial shape can take years.  We specialize in accelerating efforts with laser focus to clean up the balance sheet, and put in place the right things buyers look for in their due diligence process.  Once the company is prepared for sale we can assist on advising in the transaction and negotiations.

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Market comparables analysis:

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One likely exit scenario for certain of the Fund’s holdings is an acquisition or IPO in the next 12-36 months. Using a market comparables analysis provides a good yardstick for the valuation of such a strategic transaction or public offering. For those holdings to which we have apply this valuation method, we will analyze the data from similar transactions and offerings in the relevant industry space. We adjust each such analysis to reflect the risks relevant to the entity being valued as compared to the comparables. Appropriate revenue or other multiples are applied and we discount the resulting values at exit date to the present using a discount rate comprised of the sum of various components relevant to typical venture capital investors. Even where we do not use this valuation method as a primary valuation tool, we will in certain cases perform a rough market comparables analysis as a check on the values obtained by other methods.

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Discounted cash flows analysis:

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Where appropriate projections and historical data are available to us, we use a traditional discounted cash flows analysis. In each case we apply a customized discount rate using estimates of idiosyncratic risk, systematic risk, and terminal growth rate that take into account various factors, such as industry sector, growth stage of the entity being valued, historical revenue and cost data, industry comparables data. To a varying extent, these analyses rely in part on the results of a brief technical review and assessment of the entity being valued. Each such analysis results in a range of values with qualitative and/or quantitative probabilities attached to the upper and lower bounds of the valuation range.

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In some cases where the projections made available to us are insufficiently precise for a rigorous, traditional discounted cash flows analysis, we will apply the essential elements of such an analysis to a range of different possible scenarios to value the Company as a going concern today and/or will perform a rough DCF as a check on values obtained by other methods.

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Asset valuation analysis and potential acquisitions or liquidations:

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For entities where an asset acquisition or sale is the likely exit scenario or is among the likely exit scenario possibilities, we may value the company’s assets either as a primary method or as a check against other valuation methods. The methods we use for asset valuations vary substantially depending on the asset type. We provide information about our methods in the valuation section for any entity to which we apply this method.

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Multiple-scenario probability analysis:

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We generally reserve this type of analysis for cases where significant management forecasts are provided, but little historical data is available, and/or significant risk events lie ahead (such as a product launch or regulatory approval). We analyze the forecasts using best, medium, and worst case scenarios to come up with probable outcomes. In certain cases we also apply this technique to the results of the DCF analysis discussed above to provide some probabilities on the ranges resulting from that analysis.

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Option analysis:

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Our valuation analyses for certain of the Fund’s holdings include an option analysis component (and sometimes this type of analysis is used as a primary valuation method). We typically use option valuation techniques to modify values obtained by other methods. For example, in valuing shares in a publicly traded company that are subject to a lock-up, we construct an option model tied to the lock-up terms and value the resulting option to determine how the lock-up affects the value of the shares held. We use Black Sholes and other methods to price options for purposes of these analyses.

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Multiple-variable/assumption simulation techniques:

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We will in most cases also perform this analysis using sophisticated software tools that allow for modeling a randomized set of possible outcomes (we typically perform between 1,000 and 10,000 iterations). These valuation tools have evolved significantly in recent years, and with careful work on the sensitivity analysis of the variables, can reveal insights into the most important factors in the valuation that might otherwise not be discernable. Where significant, we will use these insights to further refine the DCF or other analysis. We believe this type of analysis is particularly useful for those holdings with highly uncertain potential cash flows, as well as holdings with a unique market niche, which require tailored adjustments to the value implied by market comparables.

 

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Connect with us to learn more about our valuation services.