Squaring Venture Capital Valuations with Reality / William Gornall, Ilya A. Strebulaev.

Format:

Book

Author/Creator:

Gornall, William.

Contributor:

National Bureau of Economic Research.

Strebulaev, Ilya A.

Series:

Working Paper Series (National Bureau of Economic Research) no. w23895.

NBER working paper series no. w23895

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2017.

Summary:

We develop a valuation model for venture capital-backed companies and apply it to 135 U.S. unicorns - private companies with reported valuations above $1 billion. We value unicorns using financial terms from legal filings and find reported unicorn post-money valuation average 50% above fair value, with 15 being more than 100% above. Reported valuations assume all shares are as valuable as the most recently issued preferred shares. We calculate values for each share class, which yields lower valuations because most unicorns gave recent investors major protections such as a IPO return guarantees (14%), vetoes over down-IPOs (24%), or seniority to all other investors (32%). Common shares lack all such protections and are 58% overvalued. After adjusting for these valuation-inflating terms, almost one-half (65 out of 135) of unicorns lose their unicorn status.

Notes:

Print version record

October 2017.