First Chicago method: Difference between revisions

Revision as of 16:41, 31 May 2012

Revision as of 16:42, 31 May 2012

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The '''First Chicago Method''' or '''Venture Capital Method''' is a context specific [[business valuation]] approach used by [[venture capital]] and [[private equity]] investors that combines elements of both a [[Valuation using multiples|multiples-based valuation]] and a [[discounted cash flow]] (DCF) valuation approach.<ref>[http://research.kauffman.org/cwp/appmanager/research/researchDesktop;jsessionid=IaIkfkTdY4dXKNiCWdGg61LY3d2P2Ke79urHnyuu4spdtbYuPfvo!484687239?_nfpb=true&_pageLabel=research_resourceDetail&keep=all&id=1133004&_nfls=false Kauffman Foundation article on The First Chicago Method]. [[Kauffman Foundation]].</ref>

Rather than completing a valuation of the company, the First Chicago Method takes account of payouts to the holder of specific investments in a company through the holding period under various scenarios; see [[Corporate_finance#Quantifying_uncertainty| Corporate finance:# Quantifying uncertainty]]. Most often this methodology will involve the construction of:

* An "upside case" or "best case scenario" (often, the [[business plan]] submitted)

* A "base case"