02 - High Growth DCF

02 - High Growth DCF - Venture Capital & Private Equity...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Venture Capital & Private Equity Valuation of High Growth Companies Valuation of High-Growth Companies Professor David Wessels ©2008 The Wharton School of the University of Pennsylvania 3620 Locust Walk, Philadelphia PA 19104
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Venture Capital & Private Equity Valuation of High Growth Companies Valuation Frameworks Multiples provide an excellent eal options models e Comparable Transactions bound to plausible valuations. They are such a simple valuation tool, however, they are often misapplied. Real options models are quite sophisticated and handle uncertainty extremely well. To be effective, the solution of uncertainty ey Value resolution of uncertainty must lead to different outcomes. Key Value Driver Models (DCF) Real Options Triangulation Key value driver models combine the simplicity of multiples, with the grounding of economic theory. Increasingly complex valuation models are better suited for mature companies. Professor David Wessels The Wharton School of the University of Pennsylvania 2 p
Background image of page 2
Venture Capital & Private Equity Valuation of High Growth Companies Flexible Value Driver Framework 30% ROIC and WACC Projections 30% Revenue Growth Projections 10% 20% 10% 20% 0% 0 5 10 15 20 0% 0 5 10 15 20 apital Units x nits Cost) (Revenue ROIC = -10% Time -10% Initial Liquidity Professor David Wessels The Wharton School of the University of Pennsylvania 3 Capital Units investment event
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Venture Capital & Private Equity Valuation of High Growth Companies Value Creation at Intel wo distinct periods of value Two distinct periods of value creation have occurred at Intel Corporation: Memory chips in the 1970s and Microprocessors ROIC at Intel Corporation 1974-2003 0% in the 1990s. Although an early leader in memory chips, new foreign 30% 40% 50% Increased competition from Japenese for Random Access Memory (RAM) Chips tel dominates the personal competition lowered prices, driving down ROIC. In the 1990s, Intel reestablishes % 10% 20% Intel dominates the personal computer's central processor; the Wintel Plaform a competitive advantage through its reinvention as the “brains” of the personal computer. 0% 1973 1978 1983 1988 1993 1998 2003 *ROIC measured as three-year rolling average Professor David Wessels The Wharton School of the University of Pennsylvania 4
Background image of page 4
Venture Capital & Private Equity Valuation of High Growth Companies Value Creation at Amgen ot every company generates Not every company generates positive spreads. When companies are not earning e cost of capital you must ROIC at Amgen, Inc. 1984-2003 80% the cost of capital, you must assess two questions: How long will it take before the mpany starts creating value? 20% 40% 60% company starts creating value? How large will the initial investments (or losses) be? -40% -20% 0% 1984 1988 1992 1996 2000 Amgen failed to earn its cost of capital until Epogen, its blockbuster drug, was approved y the FDA.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/08/2008 for the course FNCE 750 taught by Professor Wessels during the Spring '08 term at UPenn.

Page1 / 37

02 - High Growth DCF - Venture Capital & Private Equity...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online