Venture Capital Valuation, + Website

LORENZO CARVER, MS, MBA, CVA, CPA, 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 BallPark Business Valuation, the #1 selling, award-winning small-business valuation solution software covered by Bloomberg Businessweek, Entrepreneur, CPA Software News, The Kim Komando Show, and business journals worldwide.

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