LDJ Capital now offers Valuation Services.
- $8,000 for a certified LDJ Capital valuation.
- $2,000 discount ($6,000), if LDJ is offered 30-day exclusivity to invest.*
* All LDJ Capital investment candidates:
- Must have a current standard valuation.
- Will be further analyzed/ranked by LDJ Capital’s Development Director.
1. Should pre-revenue offers calculate NPV and IRR?
YES. Why? Because NPV and IRR are still strong indicators for how well a business model is structured and expected to perform. Specifically, LDJ Capital’s ranked list of bets lists six variables for our Board’s consideration: (a) Ask, (b) Offer, (c) ROI, (d) NPV, (e) IRR, and (f) Score — our weighted determination of the strength of a team’s Strategy, Mgmt, Product, Market, and their Strategic Alignments.
2. In calculating NPV, can I use my preferred discount rate?
No. A discount rate is a calculation that measures the uncertainty of cash-flow over time. It is not a conceived value that lowers the Ask. With that said, a reasonable offer has three components: 5Y Net, NPV, and Current Valuation – where the Current Valuation sets the offer and, thus, calculates ROI against expected maturity (Y5) – the NPV demonstrates the reasonable-ness of the EPS forecast.
3. Should forecasts calculate best-guess revenue assumptions?
No. Revenue assumptions need to tie to something. Preferably they’re tied to the market: similar product performance and/or industry pricing. However, if such data is not available (due to product unique-ness or a lack of published data), then the forecast should be tied to reasonably calculated formulas that can be demonstrated with a rational argument.
4. Should forecasts factor growth curves and inflation?
Yes. Even the most successful businesses in the world don’t enjoy straight growth lines — growth will always sunset over time. Moreover, future expenses will always rise due to inflation. Thus, a business will (and should) always end when its costs out-pace revenue.
5. Finally, should companies calculate their own valuations?
Typically No, but occasionally a Qualified Yes. Typically a financial firm should calculate your numbers because such firm is unbiased and their effort saves time — your numbers will make sense the first time out. The Qualified Yes comes into play if your team’s CFO has sufficient experience (previous employment calculating valuations) or the education (MBA Finance) to understand the needed formulas and calculate them correctly. This is a rarity. Besides, most CFO founders do not enjoy the perspective to see their numbers as rationally as an outsider. Moreover, veteran financiers would rather see a professional third-party’s calculation to ensure that they are seeing an unbiased and correctly calculated offer.