A Note on Valuation of Venture Capital Deals

By Thomas Hellmann
2001 | Case No. E95 | Length 14 pgs.
The note discusses some of the fundamental issues of valuation in venture capital deals. The topics discussed are not necessarily limited to venture capital backed companies, but they frequently surface in entrepreneurial companies that are financed either by venture capitalists or other private equity investors. The note has five sections: (1) introduces the so-called venture capital method, (2) examines the problem of determining the terminal value, (3) examines the treatment of risk, (4) examines how to determine the funding requirements and the ways of dealing with multiple financing rounds, and (5) discusses briefly the use of these methods in actual negotiations.

Learning Objective

To teach students the fundamental issues of valuation in entrepreneurial companies that are financed either by venture capital or other private equity investors.
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