Early Stage Valuation

CHAPTER 1Early Stage Enterprises and the Venture Capital Market

Early stage enterprises (ESEs) consist of private companies that are in the early years of their life cycles and have yet to reach profitability. ESEs include a broad range of entities, from companies that have an initial concept, design, or business plan but not necessarily an actual product, to multibillion-dollar enterprises with significant revenue and operations. Most recently, a surge of capital from investors and strategic partners has enabled some ESEs to reach unprecedented sizes and access the public markets while still in the process of developing sustainable commercial operations. The range of players in the venture capital (VC) markets has expanded to include a variety of institutional investors, high net worth individuals, foreign investors, and corporate players. According to a recent study, global VC assets under management (AUM) have passed the $850 billion mark, representing an estimated 14% of the global private capital industry.¹ The VC market involves a global community of players, with the United States leading the way in terms of investment activity (7 out of 10 VC investment firms are U.S.-based) and other regions expanding quickly, most notably China.² In a scenario of low interest rates, and with substantial cash at their disposal, investors are competing to enter into the high growth opportunities that ESEs can provide, pushing down the cost of capital and enhancing liquidity. In spite ...