The venture capital method is most often used in the venture capital industry and for valuing startup ventures. Cyndx allows you to adjust the parameters in the VC method accordingly.
Select funding stage
The funding stage selected will impact the required IRR and dilution assumptions used in the VC method analysis. Selecting an earlier funding stage will result in a higher expected return for investors, in light of the higher risks generally attending earlier stage companies. If the toggle for the further capital raise requirement is turned on, selecting an earlier stage also results in more dilution on annualized basis being anticipated before exit. Selecting a later stage should result in a higher valuation on balance than selecting an earlier stage.
Will further capital raises to be required to achieve financial projections?
This toggle triggers an assumption that future dilutive capital raises will be required to achieve the future revenue and EBITDA results set forth in the financial projections. These results drive the exit valuation used in the VC method, so it is important to reflect the incremental equity capital expected to be required to reach the targets. Toggling further capital raises on causes the discount rate applied in the VC method to implied equity value at exit to be grossed up by the ownership divergence (dilution occurring between the present or the current capital raise tranche and an eventual exit). If this trigger is toggled off, it is assumed that the company is able to meet its projected financials by relying upon internally generated funds.
Estimated timing range of exit
You can select a 3-year range for a potential exit (modeling a sale of the company or IPO). The later the estimated exit range, the longer a period over which the discount rate comprised of investor expected returns grossed up by ownership divergence from dilution will compound. If revenue and EBITDA shrink, stagnate, or grow slowly during the projection period, an earlier exit results in a higher current valuation. If revenue and EBITDA grow very quickly, the increase in implied exit value can overcome the compounding of required returns and expected dilution.
Read more: VC Method Analysis