I'm interning at a growth equity fund and I've been given a minority investment proposal (an executive summary prepared by an IB) and have been asked to check if the valuation makes sense, and if it would be a worthwhile investment.
I've never "deconstructed" a valuation before, nor have I evaluated a proposal without any raw data.
What kind of things should I be looking at?
The report states that a 37.5% stake (what they look to give away) yields an IRR of 60%. I don't really know how this is arrived at.
Liabilities are not divided into current and non-current, so I can't find the change in working capital.
Also, equity has been negative for the past 4 years? Less and less negative, but I thought negative equity meant imminent bankruptcy. It's an early stage firm, but still.
The proposal is only 10 pages long, with horrible formatting and the "revenue model" section is all over the place with no clear structure.
If anyone is willing to help a little extra, I could send the proposal.
Thanks!
EDIT: Apparently the negative equity can be due to large losses in the previous years, which makes sense. From the 4 historical years in the statement the last 3 years show profits, with a huge increase between the second and third year and I slight decrease from third to fourth, apparently due to changes in the revenue mix towards a more profitable part of the operations.
