Valuing Early Stage and Venture Backed Companies BY Neil J. Beaton

Valuing Early Stage and Venture Backed Companies BY Neil J. Beaton
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Valuing Early Stage and Venture Backed Companies

BY Neil J. Beaton


Adobe E-Book 224 pages February 2010


Find out what your early stage business is really worth¡ªand what you can do to increase its value even more One of the most misconstrued concepts in business today, valuation has also rapidly become one of the most important for business owners in today's unpredictable financial atmosphere.

An experiential and practical guide drawn from author and valuation expert Neil Beaton's fifteen years of focused start-up work, Valuing Early Stage and Venture-Backed Companies equips you with a solid foundation of the ins and outs of early stage and venture-backed valuations¡ªno matter what your field.

This step-by-step guide offers contributions from top valuation practitioners, walking you through:

New techniques for applying options methods

The pros and cons of the option pricing model

Early stage preferred stock rights

Applicable discounts for early stage companies

New procedures for implementing the probability-weighted expected returns method

Valuation theory, the consensus view on application, and the tools to apply them

The popular and widely used AICPA Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation

Valuing Early Stage and Venture-Backed Companies replaces bewildering computations with technical expertise to help you figure out what your business is really worth, and how you can increase that value starting today.


Neil J. Beaton, CPA/ABV, CFA, ASA, is a nationally known business valuation expert and speaker on the valuation of early stage companies. He is the National Partner in Charge of Valuation Services for Grant Thornton, LLP, an international audit, tax, and financial advisory services firm. He has more than twenty-seven years of professional experience and is a recognized expert witness in state and federal courts as well as international tribunals. He has authored an AICPA publication on valuing stock options and intangible assets for financial reporting purposes.


Acknowledgments. About the Author.


Chapter 1 Laying the Foundation.

A Unique Landscape.

An Overview of the Venture Capital Industry.


Chapter 2 Understanding Early Stage Preferred Stock Rights.

Stock Rights.

Contractual Rights.


Chapter 3 Enterprise Valuation Approaches.

Relevancy of Traditional Valuation Approaches.

Cost Approach.

Market Approach.

Income Approach.

¡°Vectoring¡± Valuation Approach.

The Income Approach as an Oxymoron.


Chapter 4 Application of the Option-Pricing Method in Allocating Enterprise Value.

Important Assumptions Underlying the Option-Pricing Model.

Option-Pricing Method Steps in Application.

Other Considerations in the Option-Pricing Method.

Pros and Cons of the Option-Pricing Model.


Chapter 5 Application of the Probability-Weighted Expected Returns Method in Allocating Enterprise Value.

Illustration of the PWERM.

PWERM Critical Assumptions.

Overview of Stock Rights.

Identification of Outcomes.

Updating PWERM Analyses.


Chapter 6 Applicable Discounts for Early Stage Companies.

Basis of Discounts.

Suggested ¡°Corrections¡± to the Current Use of Put Models for Quantifying DLOMs.

Dilution Discount.

The Likelihood of Liquidity.


Chapter 7 Advanced Valuation Topics for Early Stage Companies.

Utilizing the OPM as a ¡°Valuation¡± Methodology.

Sequential and Compound Options.

Allocating the Residual Value.

Further Extensions for Compound Options.

Venture Capital Rates of Return.

Executive Stock Compensation.


Appendix A Allocation of Enterprise Value Using the Option-Pricing Method: Treatment of Derivatives on Common Stock.

Appendix B: Volatility in the Option-Pricing Model.