Venture Capital Method with Sensitivity Analysis.
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Venture Capital Method with Sensitivity Analysis
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vcmethod.com
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Single period NPV methodBase ModelVariation 1Variation 2Variation 3Variation 4Variation 5
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Exit Value1V$25,000,000$22,500,000$25,000,000$25,000,000$25,000,000$25,000,000
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Time to exit2t444.4444
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Discount rate3r50%50%50%60%50%50%
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Investment Amount4I$3,000,000$3,000,000$3,000,000$3,000,000$3,300,000$3,000,000
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Number of existing shares5x1,000,0001,000,0001,000,0001,000,0001,000,0002,000,000
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Post-Money6POST$4,938,272$4,444,444$4,198,928$3,814,697$4,938,272$4,938,272
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Pre-Money7PRE$1,938,272$1,444,444$1,198,928$814,697$1,638,272$1,938,272
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Ownership fraction of investors8F60.75%67.50%71.45%78.64%66.83%60.75%
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Ownership fraction of entrepreneurs1-F39.25%32.50%28.55%21.36%33.18%39.25%
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Number of new shares9y1,547,7712,076,9232,502,2353,682,3492,014,3183,095,541
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Price per share10p$1.94$1.44$1.20$0.81$1.64$0.97
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Final wealth of investors$15,187,500$15,187,500$17,861,700$19,660,800$16,706,250$15,187,500
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Final wealth of entrepreneurs$9,812,500$7,312,500$7,138,300$5,339,200$8,293,750$9,812,500
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NPV of investors' wealth$3,000,000$3,000,000$3,000,000$3,000,000$3,300,000$3,000,000
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NPV of entrepreneurs' wealth$1,938,272$1,444,444$1,198,928$814,697$1,638,272$1,938,272
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Notes:
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1Terminal Value (at time of exit)
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2Time to exit event
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3Amount of investment
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4Discount return used by investors
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5Number of existing shares (owned by the entrepreneurs)
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6Post-Money Valuation: POST = V/(1+r)^t
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7Pre-Money Valuation: PRE = POST - 1
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8Required ownership fraction for the investor: F = I / POST
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9Number of shares the investors require to achieve their desired ownership fraction:
y = x[F/(1-F)]
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10Price per share: p = I / y
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