Files & Resources: mergersandinquisitions.com/growth-equity-case-study/ Table of Contents: 0:00 Introduction 1:16 Part 1: What to Expect in a Growth Equity Case Study 3:51 Part 2: Historical Trends and Revenue 6:16 Part 3: Financial Statement Projections 7:45 Part 4: Sources & Uses and Ownership 10:06 Part 5: Exit Calculations and IRR 13:41 Part 6: Investment Recommendation 15:24 Recap and Summary
Your case studies are so helpful and practical for anyone aspiring to be in this industry. Would love more frequent videos on such topics and maybe more in depth as well. Overall thank you for this amazing content!
Thanks. Since this channel is free, there is only so much we can post here, as it takes significant time and money to create these videos. We do offer paid courses and coaching if you want more in-depth coverage, more complex examples, or personalized support.
thanks for the video! I think the retention rate row can be adjusted? Instead of divided by the sum of # Existing Customers and # New Customers, it should rather be divided by (the sum of # Existing Customers and # New Customers) - Churn last year? Because SUM(# Existing Customers and # New Customers) is not equal to the total number of customer last year?
Yes, you can always adjust some of these formulas to get slightly more accurate percentages. The point is that this was a quick case study where you may not have time to get everything 100% correct under time pressure. So 95% correct is fine if it leads to the same investment decision/outcome.
Re: Row 78 '# Existing Customers', I'm curious how you arrived at that formula for the projected years? Doesn't seem intuitive to me. I'm mainly interested in why you're using the previous year's 'Churn' Revenue and dividing it by the 'Average ACV per New Customer' from two years prior?
All contracts last 1 year only. So we take the total existing + new customers from the previous period and subtract the lost customers. If a customer cancels in the year, we assume their annual contract value was worth about the average amount from the previous year. You could argue that it might be a little higher because the average is going up over time, so it might be better to use an average of the ACVs over the past two years.
Very helpful video, thanks for this! Question: for the valuation in the primary vs secondary, the primary deal basically has a 50% premium vs secondary. In reality, how this the valuation for secondary determined? Is there a rule-of-thumb or it varies based on negotiation? Does it make sense to have the same pre-money valuation for both primary & secondary, assuming both primary & secondary are agreed to be done concurrently in the same transaction (ignoring differences in cash disbursement days)
Thanks. The secondary valuation is usually based on negotiation with the selling shareholders, but it's often less because people often want to "get out" and get some liquidity (often after years of working at a startup for mediocre pay), even if it means selling shares at a lower price. Sometimes the valuation is the same for both the primary and secondary purchases, but in most case studies we've collected over the years, if they distinguish between primary and secondary, there is a valuation difference.
Secondary valuations are often lower because insiders are sometimes willing to sell their shares at a discount just to "get out" and gain some liquidity, especially if they've been at the startup for years without being able to sell anything. So it's very common to see different valuations, though they are the same in some cases.
Can you make a video explaining how a debt schedule works and how to value a company that has a significant amount of debt? Additionally, could you explain why some companies are able to refinance their debt while others end up going bankrupt? Thank you
There is already a Debt Schedule video here (search the channel). Explaining why a company can or cannot refinance a high Debt load is very subjective and comes down to market/investor sentiment more than specific financial metrics, so it's not really the ideal topic for Excel-based videos. The main point that changes with valuation is that you need to use a much higher Discount Rate in a DCF-based valuation to account for the higher risk, but the normal WACC setup should account for this when you re-lever Beta.
Files & Resources:
mergersandinquisitions.com/growth-equity-case-study/
Table of Contents:
0:00 Introduction
1:16 Part 1: What to Expect in a Growth Equity Case Study
3:51 Part 2: Historical Trends and Revenue
6:16 Part 3: Financial Statement Projections
7:45 Part 4: Sources & Uses and Ownership
10:06 Part 5: Exit Calculations and IRR
13:41 Part 6: Investment Recommendation
15:24 Recap and Summary
Your case studies are so helpful and practical for anyone aspiring to be in this industry. Would love more frequent videos on such topics and maybe more in depth as well. Overall thank you for this amazing content!
Thanks. Since this channel is free, there is only so much we can post here, as it takes significant time and money to create these videos. We do offer paid courses and coaching if you want more in-depth coverage, more complex examples, or personalized support.
thanks for the video! I think the retention rate row can be adjusted? Instead of divided by the sum of # Existing Customers and # New Customers, it should rather be divided by (the sum of # Existing Customers and # New Customers) - Churn last year? Because SUM(# Existing Customers and # New Customers) is not equal to the total number of customer last year?
Yes, you can always adjust some of these formulas to get slightly more accurate percentages. The point is that this was a quick case study where you may not have time to get everything 100% correct under time pressure. So 95% correct is fine if it leads to the same investment decision/outcome.
Cool, thanks man !
Thanks for watching!
Re: Row 78 '# Existing Customers', I'm curious how you arrived at that formula for the projected years? Doesn't seem intuitive to me. I'm mainly interested in why you're using the previous year's 'Churn' Revenue and dividing it by the 'Average ACV per New Customer' from two years prior?
All contracts last 1 year only. So we take the total existing + new customers from the previous period and subtract the lost customers. If a customer cancels in the year, we assume their annual contract value was worth about the average amount from the previous year. You could argue that it might be a little higher because the average is going up over time, so it might be better to use an average of the ACVs over the past two years.
Very helpful video, thanks for this!
Question: for the valuation in the primary vs secondary, the primary deal basically has a 50% premium vs secondary. In reality, how this the valuation for secondary determined? Is there a rule-of-thumb or it varies based on negotiation? Does it make sense to have the same pre-money valuation for both primary & secondary, assuming both primary & secondary are agreed to be done concurrently in the same transaction (ignoring differences in cash disbursement days)
Thanks. The secondary valuation is usually based on negotiation with the selling shareholders, but it's often less because people often want to "get out" and get some liquidity (often after years of working at a startup for mediocre pay), even if it means selling shares at a lower price.
Sometimes the valuation is the same for both the primary and secondary purchases, but in most case studies we've collected over the years, if they distinguish between primary and secondary, there is a valuation difference.
Hi. Why is the primary and the secondary pre-money valuation different? Shouldn't be the same? Thanks!
Secondary valuations are often lower because insiders are sometimes willing to sell their shares at a discount just to "get out" and gain some liquidity, especially if they've been at the startup for years without being able to sell anything. So it's very common to see different valuations, though they are the same in some cases.
@@financialmodeling got it! Perfect. Thank you! Is there any promo code for the growth equity course? I'd like to buy it :)
@@guireif Thanks. Not currently, but we do run promotions 1-2x per year, usually around mid-year and Nov/Dec for Black Friday / Cyber Monday.
Can you make a video explaining how a debt schedule works and how to value a company that has a significant amount of debt? Additionally, could you explain why some companies are able to refinance their debt while others end up going bankrupt? Thank you
There is already a Debt Schedule video here (search the channel). Explaining why a company can or cannot refinance a high Debt load is very subjective and comes down to market/investor sentiment more than specific financial metrics, so it's not really the ideal topic for Excel-based videos. The main point that changes with valuation is that you need to use a much higher Discount Rate in a DCF-based valuation to account for the higher risk, but the normal WACC setup should account for this when you re-lever Beta.
Thanks
Thanks for watching!