Private Markets III: Venture Valuation, Cap Tables and Private-Company Value

Learning objectives

By the end you can:

1. Place a private-markets commitment in its strategy family (buyout, growth, venture, secondaries), state what return each family underwrites, and run the venture-capital method end to end: required ownership at exit, the expected-dilution adjustment, ownership today, post-money and pre-money, with the implied discount rate reconciled against the target multiple.
2. Build a fully diluted cap table through a seed round, a Series A and a Series B down round, computing the price per share and the share count at every step, and read the founders' ownership off it at each stage.
3. Compute the option-pool shuffle both ways (pool created pre-money against pool created post-money), and state in rupees or dollars the value the convention transfers between founders and the incoming investor.
4. Price a liquidation preference: 1x non-participating, full participation, and participation subject to a cap, producing the payoff table across a range of exit values and identifying both the conversion-indifference point and the exit at which the cap first binds.
5. Compute anti-dilution protection under broad-based weighted average and under a full ratchet on the same down round, and state what each costs the founders in ownership points.
6. Normalise a private company's reported earnings, naming and sizing owner compensation, related-party charges, personal expenses and non-recurring items separately, and restate the result onto a listed peer's accounting policy before any multiple touches it.
7. Build a private discount rate three ways (the build-up method, the expanded capital asset pricing model, and total beta for an undiversified buyer), reconcile them, and say which buyer each one is the right rate for.
8. Value a private company by the income, market and asset approaches, reconcile the three rather than averaging them, and apply the control and marketability adjustments in the correct order, exactly once each.
9. Compute a Kaplan-Schoar public market equivalent on a real fund cash-flow schedule with the index substitution shown, handle residual net asset value correctly, and state what the ratio adds to an internal rate of return and a multiple.
10. Decompose a realised buyout return into the three financial levers and the operational levers underneath the EBITDA line, with the bridge tying to the equity gain, and know which part of all of the above an AI tool may draft and which part it must never originate (the R10 duality). Then pass the ≥85% gate.

The duality, stated once (R10). Objectives 1 to 9 are the understanding gate. Objective 10 carries the productivity payoff, and this branch's warning applies here with a specific edge. Cap-table arithmetic and preference waterfalls are mechanical, which makes them exactly the sort of thing a tool produces fluently and wrongly, with a plausible share count and a broken tie-out. Normalisation and discount selection are the opposite problem: no arithmetic is involved, so nothing looks wrong at all. A tool will hand you "a 30% DLOM is standard" with the same confidence it hands you a share count, and only one of those two errors is catchable by re-running the sum.

Prerequisites & connections

Builds on. The fund-economics node immediately before this one supplies the vocabulary of commitments, capital calls, distributions, the J-curve and the whole family of multiples, and it also supplies the actual Konkan Growth Partners Fund III cash-flow schedule that the public market equivalent here is computed on, so that the two nodes report the same fund. PW1.03 supplies the levels-of-value hierarchy, the control premium and its reciprocal, and the discount for lack of marketability with its three evidence families and the Mandelbaum factors, none of which is rebuilt here. M3.09 owns the leveraged-buyout engine and the value-creation bridge, including the point that the bridge has a free parameter in the cross term, and this node assumes both. M3.03 owns the cost of capital, the bottom-up beta and total beta. M3.06 owns comparable-company and precedent-transaction discipline. E11.02 owns deal structures, the announced-deal control premium measured off an unaffected price, and purchase accounting. M6.04's endowment effect and anchoring are the quiet background of every conversation with a founder about a down round.