A Case Analysis On Valuation Of Venture Capital

Venture capital investment plays a role of providing capital for companies in thehigh-tech and emerging industries.The rearch and development of high-tech industriesinvolves a high degree of uncertainty,leading to difficulties for companies to get supportthrough traditonal financing channels.Venture capital started up in response to thisfinancing requirements and played a significant role in promoting the development ofemerging industries. Venture capital has a history of more than twenty years in China.Thenumber of venture capital institution and the investment scale are both growingrapidly.Economic development of China is in a critical period of the Twelfth Five-YearPlan.Therefore,venture capital industry is faced with both opportunities and challenges.Changing the mode of economic growth and Optimizing the industrial structures are mostimportant in the future. As a result,the venture capital is an indispensable part. The rise ofemerging strategic industries must take the power of venture capital.However,the theory support and practical operation haven’t been welldeveloped.Especially there are many problems in the investment operation and riskmanagement.Also,we are lack of feasible valuation systems in this area.All these mayhinder the business prospects of the companies. In view of this, this paper hope to makeuse of the method of case study to provide more feasibility to the valuation of startupenterprises.The main contents of this article is an overview of the case,the financing project ofNanjing PharmaBlock co.,LTD.The information comes from my work in NanjingSharelink Capital Company which is collected through interviews,documents,discussionswith investment managers and other forms.It gives a comprehensive introdution of thebasic background of the company,the management team,the products,the sales,the financialdatas,the investment and financing,etc.,which is the base of this study.Then,the anlysis isfocused on the valuation method of this case.An analysis of this problem leads to animprovement of the valuation system which can be used in this case.I picked the P/E ratiomethod and the residual value method from various traditional valuation methods.This paper introduce the real options theory to the decision-making of venture capitalprojects.Real options can be used to assess the uncertainty and the value of project’sflexibility.Considering the charateristics of the multi-stage dicision making in venturecapital investments,this paper introduces the Triple Tree Model to give the value of realoptions implied in this specific case.