How do you guys value private equity? My gut is...
How do you guys value private equity? My gut is $0 but that feels conservative
7 Replies
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Solution
absent-sapphire•5mo ago
it's usually a conglomerate of valuation x seed funding x revenue numbers
absent-sapphire•5mo ago
it's easy to call it "paper money" but if it was truly paper money, you'd give it away for free
if you didn't, you'd value it to some extent because of a perceived value the company will do well 🙂
subsequent-cyan•5mo ago
Ah that’s fair - thanks for the input
What totaldev said, but in my experience, toilet paper unless you get ultra-lucky.
but I've also had bad luck in the 3 startups I've joined over the years. They all ended up collapsing.
subsequent-cyan•5mo ago
Gotcha I’ll focus on negotiating base comp then
multiple-amethyst•5mo ago
I used to work in a private equity firm as an investment professional (deal team, the main team that heads the firm and makes the most) and I will say that in almost all cases, the Limited Partner (LP) is prioritized above all else. The Limited Partner are external investors into the fund (so you’d be considered an LP if you give a PE firm your money expecting returns). The employees in the firm ONLY make money from the deal after a hurdle rate is met (this is the minimum amount of return that the LP needs to see when the PE firm exits/sells the company they are holding) so the PE firm will do whatever it takes to meet the hurdle rate. There’s only a finite amount of financial pie that everyone shares from in a PE deal so in most cases, this means that the employees of the company that the PE firm owns get less of the pie so that the LP gets their share and then the PE employees (the actual employees at the firm, not employees of the company they own), make the rest. A significant portion of PE deals are profitable because they are competing with public markets. They charge the LP 2% management fee of the total assets under management and so they have to be pretty convincing with their overall returns. TLDR; I’d say they are a good bet. I’m not sure if this answers your question but I hope it gave some insight.