An important component of the venture capital investment process
is the valuation of the business enterprise seeking financing.
Valuation is an important input to the negotiation process
relative to the percentage of ownership that will be given to
the venture capital investor in return for the funds invested.
There are a number of commonly used valuation methods, each with
their strengths and weaknesses. The most commonly used valuation
methods are: - The Net Present Value Method - The Venture
Capital Method Similar to real estate valuations, the value of a
company can be estimated through comparisons with similar
companies. There are many factors to consider in selecting
comparable companies such as size, growth rate, risk profile,
capital Hence great caution must be exercised when using this
method to avoid an “apples and oranges” comparison. Another
important consideration is that it may be difficult to get data
for comparable companies unless the comparable is a public
company. Another caveat when compar