Early Stage Valuation

Introduction

Early Stage Valuation covers a broad range of valuation methods that reflect the variety of early stage enterprises (ESEs), from entities that may have just started operations to companies that have substantial revenue and have already gone through multiple rounds of venture capital financing. A recurring message throughout this book is that the approach to ESE valuation needs to follow the company's evolution and adapt to reflect the company's characteristics at each stage of development. The structure of this book consists of three parts:

Part One: Early Stage Valuation in Context lays the foundation for ESE valuation under the fair value standard and describes the main characteristics of ESEs, including their market and capital structure.

Chapter 1: Early Stage Enterprises and the Venture Capital Market introduces the definition of ESE and provides an overview of the capital markets in which ESEs operate. This chapter considers the objectives and target returns of venture capital investors and how they reconcile to the historical returns realized by ESE investments. We discuss how the venture capital market has evolved over the past decade. We identify recent trends in ESE exit strategies and valuation, considering data on M&A transactions, buyouts, and IPOs over the past decade.

Chapter 2: Fair Value Standard presents the fair value standard for financial reporting as defined in Financial Accounting Standards Board, Accounting Standards Codification 820,