6. Valuing Financing Alternatives
Abschnittsübersicht
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In the previous section, we have introduced the most popular instruments for venture financing. The purpose of this section is to learn how we can roughly assess the financial value of these different financing instruments. As we have seen, most of these instruments imply non-linearity in the return allocation between the entrepreneur and the investor. We will therefore use a standard option pricing models to incorporate such non-linearity in the valuation. This will allow us to understand how liquidation preference, participation rights, and convertibility affect the value of the deal. Ultimately, it will therefore allow us to structure "fair" deals.
Before looking into the valuation of these instruments, we learn how to extract the (implied) valuation from the information provided in the Offering Terms of a term sheet.