Modeling / Analysis in VC
How much modeling do you need in VC looking at investments seed - series C. How complex does the modeling get as well and what analysis do you typically run?
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For Series A/B you'll see a lot of unique economics and market sizing modeling to try and gauge what the growth potential of an early stage biz will be at scale. Series C you've usually got a more mature business w/ a decent track record so you can build more flushed out traditional financial models, still often keeping unit economics in as a primary driver since you should start reaching some sort of recognizable scale at this point.
Early stage VC has essentially 0 modeling. At most you might have to do some lightweight pro forma cap tables, bottoms up market sizing/TAM builds, and revenue builds + income statement forecasting, but that's basically it. At growth stage you'll generally do some combo of revenue builds/forecasts, cohort analysis (usage & revenue retention in particular), pro forma cap tables, comps, exit scenarios/liquidation waterfalls, etc. TBH though it's all grade school level compared to PE. 99% of venture deals are straight minority equity stakes in very simple capital structures (no debt, very little if any structure).
This is super helpful! Sent you a PM as I'm working through something similar, would be great to get your advice. At growth stage, what should someone use to backup their cohort analysis and revenue forecasting? Does it still come down to TAM? Given that company doesn't have much historical data and is planning to release new products in the future. How does one forecast that?
Can I DM you about this? Looking to understand what qualifies as "essentially 0 modeling" and the base level necessary to qualify.
This thread is extremely helpful. When pulling comps for ur later stage deals (i.e B & C) are these similar to banking looking at capiq? How complicated to cap tables get & is the modeling heavily focused on the IS of the company?
Spreading comps in venture is similar to in banking, though more focused on multiples (EV/Rev, EV/GP, EV/EBITDA, PEG, etc) than operating metrics. Cap table modeling doesn't usually get that complicated, though I've seen a few liquidation waterfalls that are a bit hairy (for ex if a startup has taken on multiple debt lines so have creditors, and have equity investors with hurdles, participating preferred, non-traditional anti-dilution protections, etc). There are more structured rounds happening in this environment, but even so, I wouldn't say it's extremely complicated compared to PE. Forecasting the business itself is mostly income statement, as startups don't usually have complex balance sheets or non-operating cash flows. Almost always, net income is more or less equivalent to cash flow for these cos.
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