Company Valuation for the Masses
One of the things that we are hoping to do is introduce an ability to extend valuation of companies (especially private companies) beyond the typical realm of sophisticated analysts at investment banks, venture capital firms, and private equity funds. Don't get us wrong, in many ways our primary user group target is the gals and guys of Wall Street, but we also view part of what we are doing as trying to become a Zillow.com-like tool for the valuation of companies instead of houses. You can see our valuation tool here. We are working on releasing a Flash demo that will show you how to use it but in the meantime you start by essentially searching for comparable companies using our free text search or by looking through a sector tree we have created. From here you simply drag and drop companies that are comparable over to the "Select Comparables" box. Once you have done that, we automatically go out to the public markets and pull in the appropriate valuation ratios. We also search our own proprietary database of M&A transactions and use those as comparables as well. Finally, we ask for very simplified view of your income statement (basically revenue and EBITDA), cash on hand, and debt on hand. Based on this information we can give you a rough estimate of what your company is worth. We can also create a stock chart for your _private_ company. Over time we hope to add a lot of features here. We are pretty excited about it. That said, you should keep in mind that this represents only a rough estimate of the valuation of a company. If you are interested in a full-blown valuation, we offer those as well. We call them 409a valuations (because these are the type of valuations we have most often been asked to perform) but essentially we can perform any kind of appraisal or valuation for you. Look here for more information.
Labels: Valuation
posted by VentureReturns at
11:32 AM
2 Comments:
Bravo to you for creating the Venture Returns Blog! I'd like to share the following excerpt with you and your readers as food for thought. Although closely held small businesses are not your primary target audience (I assume "Wall St." pros are) the following may be helpful to your readers who are owners of small and growing privately held businesses.
The following excerpts are from the preface of "The Small Business Valuatin Book" by Lawrence W. Tuller.
"Although this book does not proffer a unified set of techniques applicable to all businesses, it does set out those valuation principles that are in common use for most closely held companies. It also suggests specific methods that yield generally acceptable results for companies whose industry characteristics or financial condition make them especially difficult to value, such as professional practices, micro businesses, hotels, and construction companies. Moreover, this book dispels any notition that beta and other esoteric theories for valuing publicly trade securities can be effectively used for closely held companies.
Rather than mathematical formulas, this book stresses the valuation process. Formulas that support fundamental valuation principles are important, but do not themselves provide a solution. It is to the process that we must look to develop creative yet meaningful techniques for establishing market value. And within the valuation process, the preparation of pro forma financial statements and cash flow projections is paramount.
In the end, the value of a business is in the eye of the beholder and can be satisfactorily determined only by negotiations between interested parties. Although the many valuation techniques described in this book should give most readers a good head start, it is the process itself that should be emphasized."
EDO
EDO:
So sorry that I missed this comment. Honestly, it has been such a ghost town around here that I haven't really been looking for comments. Thanks for your interest and your brilliant comment. I am really hoping that the VR blog can become a place where we can debate exactly this topic in fuller detail. [By the way, I hope you have taken a look at our Valuation Web Service--http://www.venturereturns.com/company_komp_builder.php?newFlag=N&pType=5.] I would love to get your thoughts on it.
Now to get to your points. I couldn't agree more that valuing a private company is ultimately an exercise in all of the messy elements of negotiation. That said, most of the buy side of the industry develop fairly sophisticated models. These models become more sophisticated (and more reliable in my opinion) the further along a company is--that is product shipping, revenues, significant revenues, profits, significant profits. Private equity models tend to be more sophisticated and, I think, reliable than early-stage VC models. Our valuation service will need to be significantly refined before it is really reliable in creating valuation estimates for private companies. That said, it is a quantum leap forward from existing alternatives and we believe that our ability to find and utilize comparable companies is second to none. Since a huge part of any valuation exercise of a private company should involve carefully analyzing comparable companies, we think that there is significant value in our valuation tool. Enough about that, what do you think? Thanks again for your comment. I hope that I haven't left this off so long that you won't come back!
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