"Your conversation around the valuation of your business may begin with the investor asking for a quick snapshot of your financial picture, but a weak EBITDA (see glossary) will by no means end the chat" says Jacoline Loewen. "Valuation of a business comes from the fund itself and the type of companies they already have in their portfolio."“Often companies we like do not have EBIDTA or revenues, so we cannot use these tools as value markers.” Instead, Peter Carrescia of VenGrowth Capital Management Inc. says, his team values businesses with:
• High barriers to entry;
• The capability of rapid revenue growth;
• An analysis of what will happen in the market over the next three years;
• Identification of the Number One Issue to overcome;
• The perfect intersection of company, services/products and cycle in the market.
The whole business of investing is complex and wrought with chaos. A very big difference when investing in IT compared to other businesses is that the VCs know that eventually it all comes down to the team involved. Tech VCs can perform the complex science of due diligence, research the market and call past clients, but the only valid metadata worth drilling into is the people. The art of predicting winning people is much harder. Investing in a practiced team is a good indicator of success, but it is still an art.
