Assessing the Value of Early-Stage PE Investments


Valuing venture or early-stage private equity investments can be tricky since they don’t typically have revenues or cash flow yet. As such, applying traditional valuation methodologies like considering discounted cash flow (DCF) may not be appropriate for new technologies and early-stage investments.

On this episode of E2B: Energy to Business, an Opportune podcast, Voice of B2B, Daniel Litwin talked with James Hanson, Managing Director with Opportune Partners LLC, an independent investment banking and financial advisory affiliate of Opportune LLP. They broke down strategies for maneuvering early-stage investments in young companies, specifically around private equity investments in the energy sector.

Hanson has over 30 years of commercial and investment banking experience. He focused on traditional investment banking for the first half of his career, such as commercial lending. In the last 15 years, he spent his time on fairness opinions, solvency opinions, and valuations. Over the past decade, he has often seen the early-stage investment valuation question come up a lot.

“As we think about early-stage and venture investing, it kind of revolves around two aspects,” Hanson says. “The first would be new technologies. The second is along the lines of project finance.”

As Hanson explains, valuing an early-stage investment or technology is difficult terrain to predict since they often rarely have good comparables and have yet to produce significant cash flow or revenue. Financially, one new technology can be very different from another, making comparisons difficult. So, which valuation methodologies are the most effective for these early-stage investments? According to Hanson, a pragmatic method for valuing these types of companies and/or technologies is the cost-based approach (“Cost Approach”).

“It [the cost-based approach] ends up becoming less of throwing numbers on a spreadsheet exercise and more of a due diligence exercise,” Hanson says. “So, what we’ll do is typically talk to the management teams, talk to the people who are working on the products, and dig in to try to see what work has been done, what work needs to be done, what the plan is, where did you think it was before you started, etc.? It’s a case-by-case basis.”

Listen to hear more on private equity investment valuations in the energy sector.

Follow us on social media for the latest updates in B2B!


10 Minutes to a Better Building: Exploring WELL Certification to Boost Businesses
December 7, 2021
  Living, working, and recreational environments can make all the difference when it comes to your health, mood, and wellbeing. Host Tyler Kern spoke with Tom Lattomus, Controls Account Executive at Boland, Read more
Why Stadium Naming Rights are a Brand’s Winning Ticket for Building Revenue, Community
December 7, 2021
 As revenue flows in for professionals sports, for the team owners and decision makers in the industry, sports is getting equally more expensive. Just look at the lucrative salary cap increases Read more
Weaver: Beyond the Numbers: The Global Minimum Tax Explained
December 7, 2021
Covering core elements of the Global Minimum Tax being considered by the world’s largest economies, Weaver’s International Tax professionals provide insight for multi-national businesses. Key Points: Read more