| Topic Name: |
vc valuation |
| Message Name: |
Clarification |
| Date Posted: |
02/14/2002 |
| In Reply To: |
let us assume we want a 30% IRR in four years. The company is valued today at $3.5 million. How do I decide how much of the company to purchase now? |
| Message: |
A few things to clarify.
First, don't get too hung up on IRR as a valuation tool, the other ones I described are more common.
Second, no valuation method will tell you how much of a company to buy. That depends entirely on the type of fund. Some funds want a board seat and a minimum 10% of a company. Otherwise they can't justify a partner spending time with that company. Other funds are passive investors and are perfectly happy with a 5% stake and no board seat. They're just along for the ride.
If the question were "I know that companies like this can get acquired four years out for roughly $100 million" and you want a 30% IRR, you can work backwards to determine what you can value the company at today. Of course you have to anticipate future dilution too.
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