Details

<p>Acknowledgments ix</p> <p>Introduction</p> <p>What You Don’t Know About Valuation Will Cost You Money 1</p> <p><b>Chapter 1 </b><b>Using Facebook, Twitter, and LinkedIn to Explain VC Valuation Gains and Losses: How VCs, Angels, Founders, and Employees Give Up Investment Cash Flow Every Day 13</b></p> <p>Did Valuation Ignorance Cost ConnectU (and the Winklevosses) $50MM? 14</p> <p>An Expert Doesn’t Need a 409A Valuation When He or She Has a Certificate and Basic Math 15</p> <p>Valuing Facebook’s Common Stock Compared to Preferred Stock in Minutes 16</p> <p>What the Winklevosses Would Have Seen in Any 409A Valuation Report 19</p> <p>Deriving a Discount for Lack of Marketability for Valuations 27</p> <p>Facebook at $80 Billion Valuation versus Enron at $80 Billion Valuation 35</p> <p>Deal Terms, Waterfalls, and the Pre-Money Myth 36</p> <p>The Pre-Money Myth 44</p> <p>Summary 56</p> <p><b>Chapter 2 </b><b>Should Venture-Backed Companies Even Consider a DCF Model?: Introducing the Life Science Valuation Case: Zogenix 57</b></p> <p>Zogenix: Company Background Summary and Highlights 58</p> <p>Leaping Forward Just 20 Months, the Company Files for an IPO 64</p> <p>Order of Valuations Presented in This Case 67</p> <p><b>Chapter 3 </b><b>Valuation Methods versus Allocation Methods Regarding Zogenix 69</b></p> <p>Separating Enterprise Value from the Allocation of That Value 69</p> <p>Valuing Total Equity 72</p> <p>Using Future Value (FV) and Present Value (PV) to Value Future Cash Flows Today 79</p> <p>Summary 82</p> <p><b>Chapter 4 Applying the Typical DCF Model to a Venture-Backed Company Hardly Ever Works 85</b></p> <p>The Gordon Growth Model 85</p> <p>High Growth Limits the Gordon Growth Model 87</p> <p>Dividend Irrelevance and Capital Structure Irrelevance 90</p> <p>Using Comparables (Generally Market Multiples) to Generate a Terminal Value 91</p> <p>Actual Differences between Angels and VCs versus Perceived Differences 100</p> <p>Applying Valuation Methods and Allocation Methods at Inception 102</p> <p>Summary 104</p> <p><b>Chapter 5 </b><b>“Enterprise Value” + “Allocation Methods” = Value Destruction: Undervaluing Companies and Overvaluing Employee Options 107</b></p> <p>Most 409A Valuations Undervalue the Company and Simultaneously Overvalue Employee Stock Options 107</p> <p>Did Auditors Drive Valuators to Overvalue Employee Stock Options? 109</p> <p>Most 409A Enterprise Value Calculations Ignore the “Takeover” Value of Preferred 113</p> <p>The Realistic Range of Possibilities Depends on Who the Investors Are 119</p> <p>Overstating Returns and Understating Returns on the Same Asset (Simultaneously) 125</p> <p>What Happens to Fund IRRs When You Assume Book Value Equals Market Value? 128</p> <p>The Real Cost of Fair Value, Fair Market Value, and Enterprise Value 132</p> <p>Yahoo! Case 137</p> <p><b>Chapter 6 </b><b>Why You Should D.O.W.T. (Doubt) Venture Capital Returns—Option Pool Reserve 159</b></p> <p>Unissued Option Pools 159</p> <p>Value Conclusion Elements Impacted by Option Pool Reserve Assumptions 161</p> <p>Impact on Parties Relying on Assumptions of VC Investments 176</p> <p><b>Chapter 7 </b><b>If Valuation Can’t Make You Money, Do You Really Need It?: Learning Practical Applications from Kayak.com 183</b></p> <p>Applying Studies to Real-World Cases 186</p> <p>Important Questions to Ask 213</p> <p>Summary 223</p> <p><b>Chapter 8 </b><b>Don’t Hate the Appraiser (Blame the Auditor Instead) 225</b></p> <p>Interview with Jeff Faust, AVA 226</p> <p>Summary 236</p> <p><b>Chapter 9 </b><b>Don’t Blame the Auditors (Blame the Practice Aid Instead): 409A Valuation Professionals Discussing Topic 820 (FAS 157) with VC CFOs 237</b></p> <p>Introduction to the Expert Panelists 238</p> <p>The Auditor’s Valuation “Bible” 239</p> <p>SAS101 Tests, PWERMS, and OPMs 240</p> <p>PWERMS and rNPV/eNPV Models 243</p> <p>Subjectivity and the PWERM (or “Power”) Method 243</p> <p>Finding Inputs for the OPM Model 245</p> <p>Enterprise Values versus Allocations 246</p> <p>Next Round Pricing and Topic 820 248</p> <p>Different Ways of Treating Granted, Unvested, and Reserved Options 250</p> <p>Valuing Warrants in Venture-Backed Companies 252</p> <p>Quantifying Qualitative Inputs to Value Conclusions for VC-Funded Companies 253</p> <p>Discounts for Lack of Marketability (DLOM) and Venture-Fund Portfolios 254</p> <p>Sharespost, SecondMarket as Market Inputs 258</p> <p>Summary 262</p> <p><b>Chapter 10 </b><b>Now That You Understand Venture Capital Valuation, Share It 263</b></p> <p>About the Author 269</p> <p>Index 271</p>

<p><b>LORENZO CARVER, MS, MBA, CVA, CPA,</b> is CEO of Liquid Scenarios, a technology-based financial business intelligence solution company that provides services to investors, practitioners, entrepreneurs, and academics on how to measure and realize high-growth venture value. Carver has a twenty-year track record of helping thousands of clients understand how to measure and realize high-growth venture value. He is the author and developer of <i>BallPark Business Valuation</i>, the #1 selling, award-winning small-business valuation solution software covered by <i>Bloomberg Businessweek</i>, <i>Entrepreneur, CPA Software News, The Kim Komando Show,</i> and business journals worldwide.

<p>Imagine selling $2 million "worth" of Google stock and only receiving $50 in return? This scenario happens every day for venture-backed companies. Failure to quickly understand high-growth company valuation can cost trillions of dollars. Yet very few leaders involved in a venture-backed company have a definitive understanding of how valuation techniques are being applied to their financial statements and the decision-making process. Featuring extensive case studies of high-profile corporations, including Facebook, Twitter, and Microsoft, <i>Venture Capital Valuation</i> provides the knowledge and techniques necessary to understand and value high-growth companies. <p>Sharing his twenty-year track record helping thousands of investors, practitioners, and entrepreneurs measure and realize high-growth venture, author Lorenzo Carver draws on real-world cases from investors, founders, and advisors to illustrate how each corporation was impacted by valuations. By putting these techniques into a context and framework, <i>Venture Capital Valuation</i> simplifies them so that anyone founding, running, and investing in these innovative companies can apply them immediately. <p>Featuring a companion website where readers can access and download additional case study material, as well as different valuation materials mentioned throughout the text, <i>Venture Capital Valuation</i> explores: <ul> <li> Why what you don't know about valuation will cost you money</li> <li> How VCs, angels, founders, and employees give up investment cash flow every day</li> <li>Facebook at $80 billion valuation versus Enron at $80 billion valuation</li> <li>Deal terms, waterfalls, and the pre-money myth</li> <li> Whether venture-backed companies should even consider a discounted cash flow (DCF) model</li> <li> Separating enterprise value from the allocation of that value</li> <li>Valuing total equity Using Future Value (FV) and Present Value (PV) to value future cash flows today</li> <li>Why applying the typical DCF model to a venture-backed company hardly ever works</li> <li> "Enterprise Value" + "Allocation Methods" = Value Destruction</li> <li>Undervaluing companies and overvaluing employee options</li> <li>Why you should D.O.W.T. (doubt) venture capital returns</li> <li> 409A valuation professionals discussing topic 820 (FAS 157) with VC CFOs</li> </ul> <p>An invaluable resource for anyone who wants to make the most out of their investments, <i>Venture Capital Valuation</i> shows business appraisers and venture capitalists how to maximize their returns and avoid losing money—before the damage becomes irreparable.

US