New Premium Valuation Options

Hey All! We released earlier to our registered users some new options for valuation. You can see the new page here. You can see our pricing breakdown here. You will have to log-in first. Essentially, we now offer the following kinds of valuation services:

• Basic valuation. Users can perform a "do-it-yourself" valuation of their company. Companies can be in any industry or at any stage and the valuation still works. The only limitation of this method is that it creates a valuation based solely on public comparables. To get M&A comparables added to your valuation (which will make the valuation more accurate, and generally higher), you need to subscribe or pay for a one-time "assisted valuation." All of the unique benefits of working with VR are included: valuation is updated daily forever, company value chart like a stock price chart is available to you, complete set of comparables is included, etc.


• Assisted valuation / premium valuation. VR helps to make sure that the user gets it totally right. This is helpful for folks who don't have a lot of experience doing valuations. We also make sure that the user gets access to M&A data for their specific industry. We don't grant them complete access to M&A data for all industries, but for their specific valuation, we make sure they get everything they need.


• Subscribers. Subscribers get access to all M&A data and therefore can do very accurate valuations themselves. They also get prioritized access for basically any requests from the VR Research team.


• 409a Valuations or Appraisal Valuations. For customers who need a totally complete, thorough, and legally defensible valuation, we recommend that they purchase a 409a valuation. We offer these valuations for between $1,999 and $3,999. We partner with top-tier appraisers to offer these to our customers. We guarantee you will not get a full appraisal or 409a valuation without sacrificing quality for less than we will offer it to you.


• Enterprise Subscribers. This option is ideal for our power users or for firms who want us to value all of their "portfolio" companies. We create detailed and highly accurate valuations for each company. We can even do 409a valuations as often as they would like. We provide them with daily valuation updates, charting, portfolio valuation (we value the entire portfolio), etc. They also get top priority access to our VR Research team, etc.

Anyway, we are extremely excited about this and want to thank Jon our lead developer for all of his hard, hard work in getting us here. Jon, you rock.

New Home Page!

We are so excited to announce that we have redone the home page. What's more, we are adding new features to the site nearly daily now. We are really excited about some of the features that are coming. The new home page has a Flash movie that shows you some of the major features of Venture Returns. It also has links to several new ways to search and sift through our databases. Most importantly, it links to a constantly improving version of our valuation tool. Give it a spin! http://www.venturereturns.com/.

VR Valuation Estimates: How They Work

While we don't want to give away our complete algorithm to aspiring competitors, we can understand why you would want to know how we come to our valuation estimates.

We use standard, multiples-based valuation procedures to get our estimate that are based on years of valuation experience and work in private equity and venture capital fields. Valuation is both art and science and our valuation estimate is not a complete, appraisal-type valuation. Rather it is a quick estimate that should be directionally correct. We also believe that the trending of the valuation should be very accurate.

The basics of multiples-based valuation involve multiplying two numbers:

1. A valuation ratio--this ratio tells you how valuable a given unit of something is. For example, the value of a dollar of revenue or the value of a dollar of EBITDA for a company in a given industry. In real estate, the common valuation ratio is value per square foot for a house in a given area.
2. The total number of "units" you are valuing. If you are using a value to revenue ratio, you would multiple that ratio by the total revenue for the company you are valuing. If you are valuing a house, you could multiply the price per square foot ratio by the total number of square feet in the house.

When you combine 1 and 2, you can estimate the value of a company. We generally use Enterprise Value (EV) / Revenue and Enterprise Value (EV) / EBITDA ratios, since these are the most accepted in the private equity business for most industries. However, our database has the ability to value companies using just about any ratio and we are adding new ratio information daily.

We use a few more tricks of the trade. For example, we mix the value of your company based on current financial results with an estimate of the value of your company based on projected financial results (in the future)--this is especially important for startups who may not have any Revenue or EBITDA in the present but expect to have significant revenue in the future. You can play with this assumption yourself by chaning the "Weighting on future projections" in our valuation tool. If you weight this at 0%, we will value your company only based on its current results.

It is important to note that valuations based on uncertain information--like future financial projections--should be taken with a big grain of salt. While all venture capitalists will project out the results of a company and make some valuation estimate based on this, they also use "gut" feel and other things based on the company's management team, etc., to get to a proper valuation. Often, they significantly discount the projections that the management team provides. Finally, ultimate a valuation in this context is really a two-party negotiation based on beliefs about highly uncertain future outcomes. So our tool will provide an estimate here but the results will only be as valid as the assumptions.

The valuation tool's accuracy will greatly improve the more that the company's current results are significant (e.g., significant levels of revenue and EBITDA) and when the projections are accurate.

Some final notes: we weight the multiples that we use based on our estimate of the likelihood of an M&A exit for the company or an IPO. Please feel free to change this number. The higher the percentage, the more likely it is that the company will exit via transaction rather than IPO.

We also use an illiquidity discount--this is a widely accepted valuation discount that should be applied to private companies since their equity is not liquid. 15-25% seems to be a relatively normal standard range for this.

Finally, as we compare our valuation estimates to actual outcomes, we reserve the right to tweak our regression analysis and our model. Please feel free to click "Include VR Proprietary Inputs" if you would like to take advantage of these findings in the future.

Enjoy! We had a lot of fun making this and we hope you will enjoy using it!

New Feature: Company Valuation

Hey everybody. This has been almost a year in coming! So we are really pleased to announce the ability to get data-driven company valuations on VR as a service. You can perform your own valuation using public comps only or you can subscribe where you get access to M&A comps as well and our research team will help you do the valuation! Once you create a valuation it is marked-to-market, meaning that it will updated daily based on how the markets change. We update your valuation daily based on stock market data as well as M&A data from our own proprietary M&A database.

Disclaimers!!!! Valuation is an art and a science, but arguably more art than science. The results are only ever as good as the data that goes in. We use a very, very simplified valuation algorithm right now (we will add complexity over time) that probably gets you to within 10-15% or so of a reasonable valuation estimate (assuming there are no signifcant balance sheet issues that our model doesn't handle). That said, you only know the value of a company when it is bought or sold in a transaction. So our models can be off significantly depending on the way that a deal is negotiated. Also, we largely ignore intagibles and many other balance sheet implications (we do look at cash and debt levels). Finally, the earlier-stage the company, the more difficult it is to value that company and the wider the margin of error. We have set up our system to value any stage of company by allowing the user to weight projected revenue and earnings more or less heavily than current results. Please note, it is up to you to assign the weightings on future results. Early-stage VCs have to do this all of the time, later-stage private equity pros shiver at the thought. Just remember that everybody, including early-stage investors, will take future projections with a grain of salt. The valuation tool works best with companies that already have results.

So, after all of these disclaimers, why should I use the valuation service? It is stinkin' amazing, that's why. Where else can you quickly estimate the value of private companies on the web for free? Even if it is directional, you can see how the company's value changes over time. I like to compare us to Zillow.com. Zillow is frequently wrong but I still check it all of the time because I want to know what is going on in the market. The same holds true for our valuations. Also, while we want to put heavy disclaimers behind our valuation tool, we don't disclaim our valuation ratio data. This data is rock-solid, heavily researched and accurate. We have paying subscribers who use this data all of the time as a basis for very big decisions. We are adding M&A deals all of the time. Those ratios are like a company version of the real-estate tool MLS (multiple listing service). We are constantly tracking the actual sales price and valuation ratios for deals that have actually happened. So, while our valuation estimates involve a lot of art and estimation, the valuation ratios that form the basis of our estimates are completely reliable. If you ever find errors or problems here, let us know and we will remedy it immediately.

I have attached above a screen shot of a company I valued. To access the valuation tool, log-in or register, then go here: http://www.venturereturns.com/valuation/valuationTool.php. You first need to find and save a set of comparables--these are companies (or deals involving companies) that are similar to your company. [Just like real estate appraisers use similar houses as the basis of their valuation estimates, we use similar companies]. Once you do this, click on the Valuation button, enter in some high-level financial information about your company and you are off to the races. The tool will create the chart I showed above for your company and it will also create a "stock price" chart that will show you the valuation of your company over time.

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!

New Feature: Research Request

We released a new feature over the weekend. For our paying subscribers, there is a button inside the valuation tool titled "Research Request." When you click on this you can fill in some information about what you are researching--particularly areas where the valuation tool is light on information or our existing comp lists aren't great--and our research team will send you a comp list within approximately 24 hours of the request. We feel like this is a great value add for our paying users!