Private Equity and Venture Finance

Session 5

Submitted By;

Varun Dosi

Roll No. 306

Group 2
The negotiation over the terms of the term sheet is due diligence.

For the risk factor, the amount would come from trend which is followed in
the country.

Terminal value is difficult to be calculated in new ventures as

1) Future cash flows are uncertain

2) Comparables are difficult to find

The steps involved in the valuation of a firm are:

Step 1: Determine the post money valuation (this can be done using NPV or
IRR method)

POST = V/(1+r)t

Where V is the terminal value.

Step 2: Determine the pre-money valuation

PRE = POST - Investment

Step 3: Determine the ownership fraction

F = I/POST

Step 4: Obtain the number of shares

Y = x[F/(1-F)]

Y is number of shares that investors need to achieve the desired ownership

fraction.

Step 5: Obtain the price of shares

P = 1/Y

P is the price per share.