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  "documentTitle": "Valuing Pre revenue Companies",
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  "notes": "The slide details the Venture Capital Method for valuation, specifically focusing on terminal value estimation and the rationale behind 20x-30x ROI expectations due to portfolio risk and dilution.",
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      "text": "For example, 1) we estimate our target company can achieve revenues of $50 million in the exit year; 2) well-managed companies in this business segment typically earn 15 percent after-tax earnings; and 3) the market value for companies in this business is typically 12x earnings (a P/E ratio of 12). We can then calculate the terminal value in the nth year at $50 million x 15 percent x 12 = $90 million.",
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      "text": "Very early-stage investing is very high-risk investing. In a typical portfolio of ten companies, seed/start-up investors can expect three to five of those companies to fail completely: no return of capital; a total write-off. Another three or four will provide some return of capital or a small return on investment.",
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      "text": "The valuation of an investor-funded company at exit in the nth year can be estimated by a variety of techniques. One common method is to (a) estimate revenues in the exit year; (b) use industry standards for earnings as a percentage of revenues; and (c) find price/earnings ratios for companies in the business vertical.",
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      "text": "Another method for estimating terminal value is to use a multiple of annual revenues. Companies similar to the target company in the previous example might be selling for twice revenues in the nth year. The terminal value by this method, would be 2 x $50 million = $100 million.",
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      "text": "My target ROI for investing in the first professional round of funding in a seed/start-up company is 30x. This number assumes the company has a first-time entrepreneur building a management team, a prototyped product, identified customers, some intellectual property as a competitive advantage, and no revenues.",
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      "text": "Anticipated Return on Investment (ROI)",
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      "text": "Terminal Value",
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      "text": "Valuation of Pre-revenue Companies: The Venture Capital Method (continued)",
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