TY  - CHAP
AB  - Abstract “Tell me the price and I’ll tell you the terms,” is a common axiom among early-stage investors. Investors and seasoned entrepreneurs know that the overall company value is only the half of the valuation story. Investors frequently insist on receiving securities beyond common stock in return for capital financing. Such securities may be convertible debt, or, frequently, preferred shares.The classic approach to valuing preferred stock as debt frequently understates the value of preferred shares and, accordingly, overvalues the value of common stock. Aside from preferential liquidation rights and dividends, preferred stock frequently carries conversion rights, participation features, antidilution rights, and other enhancements that are designed to give more return to preferred shareholders at the expense of the common shareholders (who are frequently the founders). Preferred share investment terms are so flexible that they can be engineered to completely negate the perceived benefits of a high valuation to incumbent shareholders, and shift the return to the entering, preferred shareholders.More sophisticated methodologies for allocating equity value among various classes of shareholders are becoming more common in the accounting and regulatory communities, resulting in more robust and credible value conclusions. Such methodologies are discussed in this chapter using specific examples. These methodologies are also expected to eventually propagate to the investment community because of the economic and financial foundations are quite sound. Although some of these techniques are, admittedly, complex, an understanding of early-stage venture valuation is incomplete without, at least, a high-level understanding of such techniques.
VL  - 26
SN  - 978-1-78635-238-5, 978-1-78635-237-8/1048-4736
DO  - 10.1108/S1048-473620160000026012
UR  - https://doi.org/10.1108/S1048-473620160000026012
AU  - Blake Michael
PY  - 2016
Y1  - 2016/01/01
TI  - Term Sheets: Valuing Investments in Emerging Technology Companies
T2  - Technological Innovation: Generating Economic Results
T3  - Advances in the Study of Entrepreneurship, Innovation and Economic Growth
PB  - Emerald Group Publishing Limited
SP  - 341
EP  - 360
Y2  - 2024/04/25
ER  -