Private equity investment is based upon a strategy which results in an exit from the investment after three to seven years and this will impact the valuation approach. The second reason the valuation approach of private equity will be specific is that in venture and growth, most of the companies may not be profitable or have positive cash flow at the time the investment is made, which makes valuation difficult using straightforward textbook methods. In buyouts on the other hand, there will most likely be cashflow, but the effect of a leveraged transaction may have to be taken into effect in the valuation.
Key learning objectives:
Valuing growth and venture
Dealing with different financial instruments