Which one would have lower Enterprise Value?

ddp34

Not not a boutiqueProbably the start up.

Enterprise value is the total value of the equity + debt - cash. The software start up would probably have a low amount of all 3. Maybe cash would be higher, if for example, they had a VC round and raised $10mm. That amount would be subtracted from the enterprise value.

Not 100% sure what you mean by "industrial" firm, but I'm assuming you're trying to compare a company that has been in business for 25 years, as opposed to a start up. You could easily assume the industrial firm has more debt than cash, and is just larger in general than a start-up.

If a VC had a round and puts up 10 mil for a percentage of equity, wouldn't equity increase as a result? So even though cash would go higher, so would equity, correct?

No, unless the VC's $10mm put a higher implied valuation on the total equity value. If the VC bought $10mm shares at the prevailing valuation, your company would be issuing stock, diluting current owners, and raising $10mm in cash, which would decrease enterprise value.

This is easiest to understand via an example:

Say I own 20% of a $1,000mm EV company, the other 80% owned by my business partners (thus, a 100% equity financed company). We raise $500mm in equity from a VC fund. In your scenario, our equity value would be raised by $500mm, which would be offset by an increase in cash, producing a net zero effect on enterprise value (still $1,000mm, comprised of $1,500 in equity value and -$500mm in net cash).

Now imagine that instead of putting that cash on the balance sheet, we used it to pay a special dividend to current shareholders. In that case, I'd walk away with $100mm (20% of the $500mm proceeds) AND my equity stake would still be worth the same $200mm. Somehow, my $200mm stake just became worth $300mm just by raising equity capital.