Acknowledgments
Introduction
What You Don't Know About Valuation Will Cost You Money
Chapter 1 Using Facebook, Twitter and LinkedIn to Explain VC Valuation Gains and Losses
How VCs, Angels, Founders and Employees Give Up Investment Cash Flow Everyday
Did Valuation Ignorance Cost ConnectU (and the Winklevosses) $50MM?
An Expert Doesn't Need a 409a Valuation When They Have a Certificate and Basic Math
Valuating Facebook's Common Stock Compared to Preferred Stock in Minutes
What the Winklevosses Would Have Seen in Any 409a Valuation Report
Deriving a Discount for Lack of Marketability for Valuations
Facebook at $80 Billion Valuation versus Enron at $80 Billion Valuation
Deal Terms, Waterfalls and the Pre-money Myth
The Pre-Money Myth
Summary
Chapter 2 Should Venture Backed Companies Even Consider A DCF Model?
Introducing the Life Science Valuation Case: Zogenix
Zogenix: Company Background Summary and Highlights
Leaping Forward Just 20 Months, the Company Files for an IPO
Order of Valuations Presented In This Case
Chapter 3 Valuation Methods versus Allocation Methods regarding Zogenix
Separating Enterprise Value from the Allocation of That Value
Valuing Total Equity
Using Future Value (FV) and Present Value (PV) To Value Future Cash Flows Today
Summary
Chapter 4 Applying the Typical DCF Model to a Venture Backed Company Hardly Ever Works
The Gordon Growth Model
High Growth Limits the Gordon Growth Model
Dividend Irrelevance and Capital Structure Irrelevance
Using Comparables (Generally Market Multiples) to Generate a Terminal Value
Actual Differences between Angels and VCs versus Perceived Differences
Applying Valuation Methods and Allocation Methods at Inception
Summary
Chapter 5 “Enterprise Value” + “Allocation Methods” = Value Destruction
Undervaluing Companies and Overvaluing Employee Options
Most 409a Valuations Undervalue the Company and Simultaneously Overvalue Employee Stock Options
Did Auditors Drive Valuators to Overvalue Employee Stock Options?
Most 409a Enterprise Value Calculations Ignore the “Takeover” Value of Preferred
The Realistic Range of Possibilities Depends on Who the Investors Are
Overstating Returns and Understating Returns on the Same Asset (Simultaneously)
What Happens To Fund IRRs When You Assume Book Value Equals Market Value?
The Real Cost of Fair Value, Fair Market Value, and Enterprise Value
Yahoo! Case
Chapter 6 Why You Should D.O.W.T. (Doubt) Venture Capital Returns -- Option Pool Reserve
Unissued Option Pools
Value Conclusion Elements Impacted by Option Pool Reserve Assumptions
Impact on Parties Relying on Assumptions of VC Investments
Chapter 7 If Valuation Can't Make You Money, Do You Really Need It?
Learning Practical Applications from Kayak.com
Applying Studies to Real-World Cases
Important Questions to Ask
Summary
Chapter 8 Don't Hate the Appraiser (Blame the Auditor Instead)
Interview with Jeff Faust, AVA
Summary
Chapter 9 Don't Blame the Auditors (Blame the Practice Aid Instead)
409a Valuation Professionals Discussing Topic 820 (FAS157) with VC CFOs
Introduction to the Expert Panelists
The Auditor's Valuation “Bible”
SAS101 Tests, PWERMS and OPMs
PWERMS and rNPV/eNPV Models
Subjectivity and the PWERM (or “POWER” Method
Finding Inputs For The OPM Model
Enterprise Values Versus Allocations
Next Round Pricing And Topic 820
Granted, Unvested and Reserved Options – Different Ways of Treating
Valuing Warrants in Venture Backed Companies
Quantifying Qualitative Inputs to Value Conclusions For VC Funded Companies
Discounts for Lack of Marketability (DLOM) and Venture Fund Portfolios
Sharespost, SecondMarket as Market Inputs
Summary
Chapter 10 Now That You Understand Venture Capital Valuation, Share It
About the Author
Index
