The CEO of a startup company thinks the exit will be an IPO ten years from now, valued at 20x their tenth-year earnings,
Posted: Mon May 02, 2022 9:37 am
The CEO of a startup company thinks the exit will be an IPO
ten years from now, valued at 20x their tenth-year earnings, which
are forecasted to be $50mm; when you ask him why 20x, he says it's
because that equals $1b. The CFO thinks the exit is more
likely to be a sale of the company five years from now to O’Neill,
a sporting goods company which is run by SJSU graduates, for about
$500mm, which is what O’Neill recently paid to purchase a maker of
solar-heated wetsuits; however, that company had $250mm in sales at
the time O'Neill bought it. Additionally, using a 20%
discount rate, calculate the differences in current valuation that
their two different strategies would result in.
ten years from now, valued at 20x their tenth-year earnings, which
are forecasted to be $50mm; when you ask him why 20x, he says it's
because that equals $1b. The CFO thinks the exit is more
likely to be a sale of the company five years from now to O’Neill,
a sporting goods company which is run by SJSU graduates, for about
$500mm, which is what O’Neill recently paid to purchase a maker of
solar-heated wetsuits; however, that company had $250mm in sales at
the time O'Neill bought it. Additionally, using a 20%
discount rate, calculate the differences in current valuation that
their two different strategies would result in.