Venture capital success

Guys…correct me if I am wrong. If a venture capitalist has already made an investment then we subtract the entire amount from the calculated success NPV (Sunk Cost). On the other hand if the Venture capitalist is THINKING of making an investment then we subtarct only the failure probability times the initial amount from the success NPV. Varun, I think you asked something similar a few days ago. Thanks


You get the same result either way you do it. Try it for yourself

PatBateman Wrote: ------------------------------------------------------- > You get the same result either way you do it. Try > it for yourself Care to enlighten how it would be same? e.g. Minus $1 and minus $1 X 0.2

PatBateman, I am not sure if I can agre with you here. I have seen examples with two different methodologies if the cost is sunk and if the investor is just thinking…As Revenant said…can you please elaborate?

Post a question, and I’ll do my best

it does not matter whichever way. To start up the project - you cannot only invest the 0.2 * 1 Million - even if you were thinking about it. The entire 1 Mill needs to be invested, and say 1 year later - you have a failure - you have lost the entire amount… or am I missing something here?

Yes I think cpk123 is correct, Suppose a VC wants to invest $100 in a company, while computing its NPV, anyways they are going to invest $100 for the project…so we DONT take the preobaility against the cash outflow at the begining of the investment…