When a company starts a round of financing, its owners and venture-capita=
l
backers must first agree on what the fledgling firm is worth. This figure=
is
termed "premoney valuation," regardless of whether the company needs an
initial cash infusion (the seed round) or is ready to IPO after several
rounds of backing. At the VentureOne '99 Summit last month in San Francis=
co,
President and CEO David Witherow provided the most recent hard data on wh=
at
he called the "art, mystery and magic" of valuations. Notably, the value =
of
a startup has risen dramatically, reaching a median value of $17 million =
in
1998. But returns have also spiked =E2=80=93 the value of pre-IPO firms h=
as tripled
over the past five years, reaching $168 million in 1998. Overall, Intern=
et
startups have nearly tripled in value since 1995 and now outpace the valu=
e
of all other kinds of startups, especially during later-stage rounds. Eas=
y
access to financial and human capital makes Northern California companies
command especially high valuations. VCs who spoke at the VentureOne
conference confirmed the value of moving an exec or two to the Bay Area a=
nd
calling the new office the "corporate headquarters." Venture capitalist
Kevin Fong of the Mayfield Fund compared the valuation process to that of
the real-estate market. The method of evaluating a Web property requires =
the
same rigorous inspection procedures and financial due diligence as a majo=
r
real-estate transaction. Fong says Mayfield first determines how much
comparable firms are worth, then evaluates four critical areas of the
startup: the management team, the maturity of the business plan, the
maturity of the market, and product-development and customer-adoption ris=
ks.
In the venture-capital community, Fong says Internet startups are the
equivalent of pricey neighborhoods: "The same square footage [in the
Internet world] can cost you a lot more than some place more rational."
source; The Industry Standard, April 12, 1999 issue
http://www.thestandard.com/metrics/display/0,1283,875,00.html
Tushar J. Mehta
email: [email protected]
voicemail: (425)558-1101