|
MULTIPLE ROI: |
" How many times our investment can we reasonably
expect from the time we invest to the time we are liquid, i.e., when the
start-up goes public?"
(Used most often by venture
capitalists in seed and later rounds of private funding of start-ups.)
One dollar in today's money will be worth how many
dollars at IPO? |
|
ROI PER YEAR: |
"How much will we earn per year by the time the
start-up goes public?"
(Particularly important for
the investor in the earliest stages of a lengthy start-up.)
If we put one dollar into the bank, how much interest
would it have to earn each year to be worth the IPO price? |
|
PERCENT CONTROL: |
"How much of the voting stock will we control after
this round of financing?"
(More important for actively
participating investors than for others.)
What percent of the stock of the company will be owned
by investors versus management and employees (counting all options as if
exercised)? |
|
NEXT ROUNDS: |
"How much room is left for the next round of investors
if the start-up needs another round? Will that be enough to attract them,
especially if the start-up gets into trouble? Will we be able to avoid a
write-down of our share price in the next rounds?"
(Most important for strategy
in funding a start-up that needs a lot of capital or one that has been
disappointingly long in going public.)
If we raise the price in each successive round of
funding by a ratio 2:1, can we hit the desired IPO price? |
|
PRIOR ROUNDS: |
"Will the pricing of this round make too high a profit
for the last round since they have invested?"
(New investors do not like
windfall profits for prior investors; instead, the new money tries to keep
the markup of shares below 3:1, boom periods can increase that ratio.) |
|
HISTORICAL MULTIPLIES: |
"Using the start-up's historical financial statements,
are the prices of this round reasonable when compared to equivalent
companies? How many times revenue does this round represent?" |
|
FUTURE MULTIPLIES: |
"Using forecasts of the start-up's financial
statements, are the prices of this round reasonable when compared to
equivalent companies? How many times revenue, profit, book value and cash
flow does this round represent?"
(This is used especially for
pricing initial public offerings.) |
