Knowledge Base: Venture Capital & Startups
Venture capital is a form of financing offered to early-stage, high-growth-potential companies in exchange for equity (i.e., ownership in the companies).
Venture capital firms raise capital from outside investors (Limited Partners), such as pension funds, endowments, and family offices, and invest this capital in startups.
Startups need this capital to build their product or service, scale it, and market and deliver it to customers.
The VC firms funding them aim to grow the companies and then exit via an acquisition or initial public offering (IPO) so they can profit and return some of these profits to their investors.
Financial modeling for startups and venture capital deals involves understanding capitalization tables (“cap tables”) and how they change over successive funding rounds and exits.
Valuation is similar to standard corporate valuation but requires additional adjustments for the smaller size and additional risk of these companies.
Transaction modeling, such as for M&A deals, also involves additional twists, such as earnouts that defer a portion of the purchase price based on the startup’s financial performance.
Our full Venture Capital & Growth Equity Modeling course covers these topics in-depth; you can get samples, excerpts, and summaries from the full course below:
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Annual Recurring Revenue (ARR): Definition, Calculations, and Real-Life Usage
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Average Revenue Per User (ARPU): Examples and Calculations
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Convertible Notes for Startups Explained: Definition, Calculations, Excel Examples, and Comparison to SAFE Notes
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SaaS Accounting: Bookings, Billings, Revenue, Deferred Revenue, and Accounts Receivable
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SAFE Notes Explained: Definition, Calculations, Excel Examples, and Whether They’re “Unsafe” for Startups
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The Capitalization Table (Cap Table): Full Guide + Excel Examples
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The Liquidation Preference in Venture Capital: Full Tutorial and Excel Examples
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The “Rule of 40” in SaaS: Examples, Calculations, and Real-World Meaning
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Venture Debt: Full Explanation, Sample Excel File, and Returns Calculations