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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: Lizzie Tudor who wrote (63613)	4/18/2003 3:56:29 PM
From: GVTucker	Read Replies (1) \| Respond to 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.

To: Lizzie Tudor who wrote (63613)	4/18/2003 9:01:28 PM
From: SouthFloridaGuy	Read Replies (2) \| Respond to of 77400

No, I do not agree. You clearly haven't read the case. Anytime you have a deal that has multiple instruments encompassed in the "unit" and one of those units is say warrants or options, you need to use Black Scholes. This happens many times when the I-Bankers are trying to price a deal and make all parties happy, but the value of the equity is not explicitly stated. It probably happens less today because it's unethical, but to say that Black Scholes isn't used is plain wrong. Anyway, maybe you only know the big swinging dicks, so they are telling you that it's not used. I only know the peons who actually have to value the damn things. E.O.D.