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First step: calculation...

Автор: olegj от 6-04-2013, 11:34

First step: calculation...

First step: calculation of future value (forward value) of the planned investment. At this stage, the future value is calculated by the formula: FV = PV (1 + r), where r - the target rate of return; N - the time horizon of investment (time to exit from investments and profit realization). Second step: the calculation of the final price (terminal value) of the company at the exit of the investment. Calculate the final value of the company can use the method of comparison with companies counterparts.

First step: calculation...

Projected net income per share multiplied by the average ratio of stock price to earnings ratio for comparable companies analogues. To make a comparison, venture investors choose some mature and liquid companies whose characteristics best fit the profile of the company, which wants to turn the young company. It should be noted that the choice of companies analogs may have a material impact on the valuation. Therefore, some firms analogs may hold more investors, and others - the company's founders.

Third stage: the definition of the required equity in the company (ie, the share of ownership). In order to determine the necessary investor interest in the share capital, divide the future value of the investment (the first stage) to the projected final value of the company at the exit of the investment.

Fourth stage: calculation of the number of required new shares to investors and the stock price. The number of new shares to a venture investor is calculated as follows: Share capital = Number of new shares / (Number of new shares + Number of old shares). Fifth step: calculation of pre-investment and post-investment value of the company.

Sixth stage: Forecasting the retention rate (retention ratio). Most companies go through several rounds of financing to the exit of investors from the share. Prospective investors will receive a share in the share capital and dilute the share of early-stage investors. Retention rate = [1 / (1 + interest in the capital of a future issue for future investors)].

Seventh step: calculation of the required share capital and the share price, adjusted for projected erosion: Required share capital, adjusted for dilution = initial share capital / on retention rates. Convertible preference shares and contract terms in venture funding The main tool used by venture capitalists funding young companies - is convertible preference shares. Typically, these shares suggest getting special rights and privileges that protect investors against possible losses on investment and ensure a profit. Typically, holders of such shares may convert them into ordinary at any convenient point.

In the conversion of the venture capitalist loses all rights and privileges associated with preferred shares. However, investors convert their shares into common shares if it will bring them greater benefits than the preservation of preferred shares. When the IPO preferred stock automatically converted into ordinary shares. However, the sale of the company from venture capitalists have a choice: convert the preference shares into ordinary and split the proceeds with the holders of common stock; Save preferred shares and receive relying preferred shareholders share of the proceeds from the sale of assets.

First step: calculation...

One of the main benefits is the liquidation preference shares. Liquidation privilege - is the holder of the shares entitled to receive a certain amount of the liquidation of the company before it will be done or what the benefit of the holders of common shares. Under liquidation in venture financing means a wide range of transactions (mergers, consolidation, sale of shares or assets of a company, any other transaction or series of transactions), which resulted in those who have held before the transaction the main part of the shares, lose the majority. Thus, in the venture capital company liquidation can occur both in its full bankruptcy, and when it reaches its grand success.

Usually liquidation privilege is defined as the factor by which to multiply the size of the initial investment. For example, "two-time liquidation privilege" means that the elimination of the investor is entitled to priority in receiving the amount exceeding the amount of investment in half. After payment of the liquidation privileges remaining from the sale of the company shall be distributed among the holders of ordinary shares on a pro rata basis.

Liquidation privilege protects investors in the event that the company's management intends to eliminate it. More than 98% of all investment contracts give venture capitalists liquidation privilege, which implies that for each preferred share they can get a certain amount, which is usually equal to the amount of down payment. More than 83% funded companies give venture capitalists the right to participate in the distribution of the proceeds of the liquidation of assets (the right to participate - participating right), which remain after payment of the liquidation of privileges.

First step: calculation...

Preferred shares are divided into several categories.

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