VC models

Hi everyone. This is a very basic question so be easy on me. I currently work for one of the U.S.'s largest insurance firms in wholesaling. We have a small division that focuses on VC partnerships that has an opening I'm interviewing for. Based on the pay and title I'm sure they are not looking for external candidates as it wouldn't be competitive for anyone with much experience at a major player. My question is about financial models. I know financial models can be a joke for a company you're expecting to have 2x-10x revenue growth as far as reliability goes. But with that being said, what models would you expect to use or be able to discuss in detail as a starting point?

 

Strong breakdown of the Margins/COGS. And then you would usually look at comparable transactions, change in revenues since the last valuation, and EBITDA multiple for your valuation. The later the stage of the startup, the more competitive the rounds will be hence valuation will kinda be randomly chosen at a high valuation to make the investment competitive. There is no 'model' that you should know. Focus on the competitive advantage, competitive differentiation, understanding the scalability of a business. Again this would depend if you are looking at early stage investing, Growth equity or a Corporate Venture fund, that isn't looking for returns, rather to acquire and integrate the startup in its business.

 

You would likely look at revenue multiple for valuation, not EBITDA multiple, especially in earlier stages.

Also, the later the stage, the less of a total swag the valuation will be. At later rounds, companies will be more likely to be cash flow positive, have a stronger track record and you can more reliably forecast cash flow and growth.

BoomerCB, if you really want to crush the interview, there are models you should know. You should know how to do cap tables, how to quickly answer "How much should I own if we make an investment of $X", how to read and forecast an income statement, how to size a market both bottom-up and top-down.

I would also brush up on the insurance startup space.

 
Best Response

You don't seem to understand how financing startups works... This is not a matter of agree / disagree

For earlier stage companies, you do valuations as revenue multiples. That's just what you do. Saying you do otherwise is like saying bankers don't spread comps or make DCF analyses in Excel, or like saying PE associates don't do LBO modeling. You're just wrong...

You don't know the margin because most of these companies aren't profitable, and that isn't what matters. What matters is growth. That's the whole point.

OP, this guy has literally no idea what he's talking about.

 

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