A significant number of valuation experts look to the private capital markets when estimating the cost of capital for a private firm, according to a BVWire survey. While most experts extrapolate data from the public security markets and adjust them to their subject private company (55% say they use this approach exclusively), 42% say they use both approaches. Here are the other interesting results from our survey:

• When using public market data, 47% of survey respondents prefer the buildup method; 16% use CAPM, and 37% use both;
• Sixty-nine percent of respondents say they use public market data from Duff & Phelps, while 45% use data (provided free) from Professor Aswath Damodaran of New York University; 13% say they use data (also free) from Professor Pablo Fernandez of the University of Navarre in Spain;
• As for private capital market information, 40% use the Private Capital Markets Report (Pepperdine University); 23% use BVR’s Private Company Cost of Capital Index (based on DealStats data); and 22% use information from Cambridge Associates (U.S. Venture Capital Index or the U.S. Private Equity Index); and
• Over half (56%) of respondents say they use the Duff & Phelps Cost of Capital Navigator online tool for estimating the cost of capital, while 34% use their own internally developed application; a new entrant, BVR’s Cost of Capital Professional, has gained traction and is used by 18% of respondents.

We had 62 responses to our survey, so our thanks to those who participated! We’ll have the next installment in our series of cost of capital surveys in the next issue of BVWire.