Venture capital method

The venture capital (VC) method values a startup by projecting its exit value at a target horizon and discounting back to present using the investor's required return rate. Post-money valuation = Exit value / (1 + target IRR)^n. The pre-money valuation is derived by subtracting the investment amount. Simple and directly linked to investor return objectives, it relies heavily on exit value and IRR assumptions — making it sensitive to sector multiple assumptions and growth projections. It is most appropriate for early-stage companies with limited financial history where traditional DCF analysis is not feasible.

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Example: a VC fund targets a 35% annual IRR on a CHF 3.0 million investment in a Swiss startup, projecting an exit in 5 years at CHF 45.0 million. Post-money valuation = CHF 45.0 / (1.35)^5 = CHF 9.8 million. Pre-money = CHF 9.8 - 3.0 = CHF 6.8 million. The fund receives 3.0/9.8 = 30.6% of post-money capital — the ownership stake required to achieve the target return at the projected exit value.

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Hectelion applies and critiques the VC method in startup valuation mandates, combining it with other approaches for robust pre-money conclusions.