New Feature: Crazy Cool Graphs

One of my personal favorite features in the valuation tool is the EV/Revenue and EV/EBITDA graph. This graph shows exactly how these ratios have varied over time for that particular industry.

I have inserted a graph above that shows what valuation ratios are doing in the Interactive Television sector over the past 2.5 months. It is cool to see that after dropping for a while they seem to be strengthening again. As an investor, entrepreneur, potential acquirer, etc., this is great information to have! You can see not only what the multiples for a given sector are today but you can see what the trend is...so you can look for deals with a higher probability of multiple expansion in the future. Early-stage VCs tend not to care as much about this as later stage folks do because early-stage VCs don't rely as heavily on multiple expansion. Early-stage investors are looking to back companies whose revenues are going vertical. If a company's revenues are going vertical, it doesn't really matter what is happening to the sector multiple and the company will still be worth a lot of money. For later-stage investors, corporate acquirers, etc., multiple trends are much more important. Private equity investors generally make money in 3 ways in a leveraged acquisition: 1) paying down debt, 2) increasing the profitability or margin of the acquired company, and finally 3) multiple expansion. This last category is generally the least understood. Now Venture Returns can help you to understand it with crystal clarity! Because later-stage investors generally invest in highly stable companies--so that they know that they will be able to service a whole lotta debt--they almost don't want revenue growth. More accurately, they don't want to take the risks that are generally required to create revenue growth. So if revenue is going to stay flat over the life of an investment, multiple expansion is all that much more important. Anyway, sorry for the pontification...hope you enjoy the picture of the graphs! As always, please register at www.venturereturns.com and use the Valuation Tool for yourself!