The implied private company pricing line (IPCPL) is a tool designed to estimate the cost of capital for small private companies. It uses data from the past 15 years on 500 private-company transactions selected from the Pratt’s Stats database. Throughout each quarter in 2017, there was a downward trend in the return expected by those who provide capital. The returns on the cost of capital are calculated across four revenue ranges (see chart below). Companies with revenues of over $10 million but no more than $15 million saw the largest decrease in the expected return, as January 2017 started off with a rate of return of 14.6%, and, by December 2017, the rate decreased to 13.5%. Smaller companies also experienced a downward trend in their rates of return. Companies with revenues of up to $1 million had an expected rate of return of 19.0% in January and finished the year at 18.3%. Companies with revenues of over $1 million to $5 million had a rate of return of 17.3% at the beginning of 2017 and finished the year at 16.4%. Companies with revenues of over $5 million to $10 million had a rate of return at 15.5% and finished at 14.5%.

Feedback wanted: The IPCPL tool is an evolving method, and the developers welcome your feedback. For full information, please visit the IPCPL page.