The X-Axis in this picture is the AICPA Operational Development Level (the greater the operation level, the more mature the company is) and the Y-Axis is the Post-Money Valuation (PMV) Per Employee that a company got during its financing rounds. The PMV is just the pre-money valuation determined by the venture capitalist (VC) added to the cash infused by the VC. The analysis is interesting. The lines that connect the data points themselves are meaningless. They are just there to show where the data points lie - the bands are made clear this way. We can readily infer from the picture that most of the data points lie in the $200K to $1.5MM band. Then we have a select few that lie within the $2.8MM to $3.5MM band. And finally, we have the elevated band where a select few lie within the $4.7MM and $5.7MM band. From analysis, we know that the top most band essentially reflects biotechnology companies in our portfolio. Given the large capital needs required by biotech start-ups, we'll exclude this band. The remaining bands clearly show that there is a clear gap between two distinct bands. If you are a company that has a stellar team and a solid growth, you do get clear of the pack and command some great valuations. On the other hand if your growth is mediocre, you are stuck in a narrow valuation band. Note that the greater band's average is almost 4 times the average of the lower band. This is typically the case in the public markets as well. A company with a strong market share and a stellar team trades as much as 4 times the lower valuation multiple company. While some of the results maybe obvious, it was important for us to analyze how companies break out in the private market place. I believe we have a statistically significant amount of data points in there to draw some reasonable conclusions.
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