NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Squaring Venture Capital Valuations with Reality

William Gornall, Ilya A. Strebulaev

NBER Working Paper No. 23895
Issued in October 2017
NBER Program(s):Asset Pricing, Corporate Finance, Productivity, Innovation, and Entrepreneurship

We develop a valuation model for venture capital-backed companies and apply it to 135 U.S. unicorns – private companies with reported valuations above $1 billion. We value unicorns using financial terms from legal filings and find reported unicorn post-money valuation average 50% above fair value, with 15 being more than 100% above. Reported valuations assume all shares are as valuable as the most recently issued preferred shares. We calculate values for each share class, which yields lower valuations because most unicorns gave recent investors major protections such as a IPO return guarantees (14%), vetoes over down-IPOs (24%), or seniority to all other investors (32%). Common shares lack all such protections and are 58% overvalued. After adjusting for these valuation-inflating terms, almost one-half (65 out of 135) of unicorns lose their unicorn status.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

A non-technical summary of this paper is available in the January 2018 NBER digest.  You can sign up to receive the NBER Digest by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w23895

Users who downloaded this paper also downloaded* these:
Kleven, Landais, and Egholt Søgaard w24219 Children and Gender Inequality: Evidence from Denmark
Svensson w23993 What Rule for the Federal Reserve? Forecast Targeting
Acemoglu and Restrepo w24196 Artificial Intelligence, Automation and Work
Bell, Chetty, Jaravel, Petkova, and Van Reenen w24062 Who Becomes an Inventor in America? The Importance of Exposure to Innovation
Asker, Collard-Wexler, and De Loecker w23801 Market Power, Production (Mis)Allocation and OPEC
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us