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Technology Stocks : Cisco Systems, Inc. (CSCO)
CSCO 76.07-1.1%Dec 1 3:59 PM EST
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To: Lizzie Tudor who wrote (63613)4/18/2003 3:56:29 PM
From: GVTucker  Read Replies (1) of 77400
 
None of the big VCs use black scholes to value private deals, it doesn't work for private companies, which is why the syllabus for the course says.... "The negotiation of the terms-and-conditions of the deal, as well as its pricing, prove challenging."

True, none of the big VCs use Black Scholes to value private deals. It is kind of tough to determine the volatility of a company's equity when there isn't a public market for it (though some try), which renders Black Scholes pretty useless.

Of course, most VCs don't use much of any quantitative measures for private deals, even though they might convince their targets that they are. The primary method of valuation for VCs is valuing the company as low as possible if you aren't in the deal already, and as high as the market will bear if you're already in the deal. All the rest of the quantitative spreadsheets is just fluff to justify a number that they've already got in mind.
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