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I’m trying to look for reasonable multipliers in Europe and in US for the possible exit of the 1st VC at Yr5 in the NanoTech domain.

The start-up figures are as follows:

  • 1st round VC: 2M at Yr1 (30% equity)
  • 2nd round VC: 2M at Yr2 (20% equity)
  • Income before tax: 11M at Yr5
  • Retained earnings: 5 M at Yr5

Any idea? Or website were I could find some hints?

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5 Answers

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Criteria I have seen is 10x in 3-5 years or > 20% IIR for the investment duration.

There is not much out there in terms of guidance on this -- at least for free (I am sure that the http://www.thefunded.com/ has insights but you have to pay for that).

Once resource that someone referred to me is from Orrick (http://www.orrick.com/practices/corporate/emergingCompanies/startup/index.asp). The have a term sheet calculator that might help.

Still another would be The Money Tree (https://www.pwcmoneytree.com/MTPublic/ns/index.jsp) This tracks all the funding done by VC's and if you did some digging, you could probably figure out what exits were successful.

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I agree. The target minimum for analysis needs to see 10x return on cash in 5 years or a 20% IIR or higher for the duration of the investment. – Tall Jeff Dec 28 '09 at 15:31
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Standard multipliers that VCs look for in the US is somewhere between 5-10x of original investment. Anything less, they usually consider "failure".

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5x - 10x of original investment, not inflation adjusted, after 4-8 years? Sounds very low to me, could be the bottom end of the range angels would shoot for, but certainly not what a VC would hope to see? – Jesper Mortensen♦ Nov 18 '09 at 19:08
My experience is limited to the US market, specifically the mountain region...that was the target for 3 different startups, 3 different venture partners. YMMV, especially in the Valley or the Alley. – Dave Rodenbaugh Nov 18 '09 at 19:57
I think 10x needs the be the demonstrated minimum for purposes of assumptions in the analysis. This translates into a 20% IIR (internal rate of return) per year for 5 years. – Tall Jeff Dec 28 '09 at 15:29
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17x and above is great

around 10x is okay

under 5x is a failure.

this is why VCs only invest in companies that can create hundreds of millions of dollars of value: make no mistake how hard it is to get a good x exit.

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You could always look at get a list of 2008 - 2009 IPO's and look at their S-1's to back into the actual multiplier the VC's realized.

2009 we had LogMeIn, Rosetta Stone Inc., Open Table, DigitalGlobal Inc., Bridgepoint Education Inc., Ancestry.com, A123 Systems and a few others. Check here for a list of 2009 IPO's iposcoop.com.

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VCs always say a 10x return is the goal, but I was once told by a small, but successful, VC (outside Silicon Valley) that "on average" the returns are less than 5x...that's just reality.

Silicon Valley has its own set of rules, which I cannot speak to.

Of course NanoTech will have its own set of rules, risks and rewards...you should probably ask people with specific experience in that space...

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