Chapter 13 - Techniques of equity value definition

Abstract

Company valuation is a critical phase of investment policies put in place by venture capitalists. It is important because the value of the company gives both the entrepreneur and the venture capitalist a place to bargain over the amount of money required by the entrepreneur and the number of shares that the shareholders can give up in favor of the venture capitalist. The importance of enterprise value analysis is evident when the object of valuation is a high-risk, high-tech company with no historical data (or a limited track record) and poor economic and financial performance. Company evaluation is based on the forecasted financial statement and balance sheet. An inaccurate business plan leads to an incorrect equity value. To calculate the value of equity, it is necessary to use dedicated techniques to identify the real and underlying value of a firm. Techniques are used to calculate the equity value of a potential venture-backed company. The four methods are: comparables, net present value, adjusted present value, and venture capital method.