Options for valuing early-stage companies

BVWireIssue #52-2
January 10, 2007

In another LEI session on Intellectual Property valuations, presenter Neil Beaton (Grant Thornton) bemoaned the dearth of relevant data. The Mergerstat database provides some IP data, and of course there’s Royalty Source®. Beaton also mentioned real options as another approach—a “lattice/option model similar to Black Scholes,” most often used in venture capital (VC) and early stage company valuations.

In fact, when Beaton moderated BVR’s recent telephone conference on the topic, panelist Gregg Watts (CBIZ Valuation Group, LLC) offered that real options valuations take place most frequently after the second stage, when start-ups have received their initial round of financing but still may not be generating a lot of revenue or profit. At this point, an asset approach “just doesn’t make any sense,” Watts says, and “we’re going to be doing a lot of either traditional DCFs, VC DCFs, or real options,” as well as market approaches that look at venture data, IPO data, public company data, or M&A data.

For a CD or transcript of “Early Stage Company Valuations,” also featuring Chris Kutsor (Motorola), click here.

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