Hi everyone,
Hope we are all recouping from 2020. In this month’s blog, I like to address the need to understand valuation techniques for early-stage companies. With SPACs (Special Purpose Acquisition Companies) all the rave today, valuators must ensure that they are comfortable valuing companies at the various stages of their lives. According to analysis done by KPMG (2021- 2nd Qtr.), there are four stages that new companies go through. The first stage is called the “Seed Stage” with companies being in existence for less than one year. Then comes the “First Stage” which represent companies that have just finished developing prototypes. As expected, the next stage is called the “Second Stage” which are companies that are just now sending out samples of products to customers for feedback. Last but definitely not least is called the “Bridge Stage” whereby companies are gathering funds for their future IPO. At each stage of the game, venture capitalists Return on Investment demands will decrease as its gets closer to IPO status. For instance, at the Seed Stage, venture capitalists would demand anywhere from 50% to 70% rate of return where at the Bridge level, they would garner somewhere between 20% to 35%. The ability to utilize valuation techniques at all the stages is essential for any valuator entering this particular sub-category of valuation. The area is growing considerably as many new companies are seeking funding to be the next “Unicorn.” Until next time……………………………………
Joel
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