VC valuation method

CFA Level II
#1

Least to use? 1. DCF 2. Real option 3. Replacement cost

#2

DCF would have been the answer if it were a choice. see post on private equity

#3

I think it was Earnings Multiple. I said replacement cost but think I am terribly wrong.

#4

answer is multiples. I also put replacement cost and was incorrect.

#5

I think I chose replacement cost wrongly. But which method is most popular for VC? Don’t u need earnings multiple to calculate terminal value?

#6

terminal value can be be accurately valued because no idea what earnings will be…

#7

earnings are usually negative for startups so you can’t use earnings multiple

#8

how about using multiples in terms of sales?

#9

lzhao Wrote: ------------------------------------------------------- > how about using multiples in terms of sales? startups may be all R&D, no sales to work with

#10

So is DCF method useful in VC?

#11

lzhao Wrote: ------------------------------------------------------- > So is DCF method useful in VC? That wasn’t one of the options, but generally no, since you can’t really forecast cash flows with any confidence.

#12

It was a new and risky organization so you would not be using earnings multiplier.