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Genmedi: How to Value a New Company for an Upcoming Round of Financing
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Reference: E-207-E
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Year: 2019
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Number of pages: 5
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Geographic Setting: China
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Publication Date: Jan 27, 2020
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Source: IESE (España)
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Type of Document: Case
Description
Every venture capital and private equity deal involves determining the value of the company. This is one of the most important-and most difficult-tasks faced by an investor (and an entrepreneur), and skill is required when using the various methods for valuing a company.
In March 2019, the investors in LifeCycle Ltd.-a technology company based in Shanghai, China-set up a new company, Genmed, to capitalize on an innovative technology for biological research owned by LifeCycle. The immediate issue facing LifeCycle's investors was how to value this new company for the upcoming round of financing.
Learning Objective
This case has been used in the second-year MBA course Financing Entrepreneurial Opportunities (ENFI) at IESE Business School, with the main focus on the valuation of an unquoted (privately held) company. The case has aimed to:
a) Introduce the students to the challenges of selecting the best valuation method to use to determine the value of an unquoted company
b) Facilitate discussion of the process of valuing an unquoted company for negotiation purposes
c) Apply the venture capital method for the valuation of start-ups.
The case was positioned in the first part of the course following cases on fundamental concepts of assessing an entrepreneurial opportunity and before cases on financing instruments and valuation methods applied to start-ups and early-stage companies. The case is designed for a 30-minute class discussion and can be combined with other short cases focused on the valuation of privately held companies.