$ in millions
This tool uses comparable deals to establish a valuation range for biopharma companies.
It uses four methodologies: private round comps, IPO comps, M&A comps, and public equity comps. We will explain each in more detail below (including explaining the "hurdle rate").
You can filter by therapeutic area, development stage, and current private funding round (Series A, B, etc) to find results that are more relevant to your situation. Not all of the filters apply to every methodology (more on this below).
You can click on the bars in the chart to view the transactions in the comp set (for paid subscribers only).
DCF analysis is another common technique for valuing companies. We prefer to use DCFs for later-stage companies, but sometimes they are used for earlier-stage startups as well. We have a free DCF tool that is widely used by investment banks, venture capital and hedge funds, and startups here, including a free Excel template, and a video discussing biopharma DCF analysis here.
filter by therapeutic area and funding round
This technique benchmarks the valuation range for private companies based on valuations for comparable private round transactions.
The chart shows the range of post-money valuations for comparable deals. Clicking on the bar will show the individual deals, as well as the percent of the company's purchased in the round and the step-up in price per share from the last round (paid subscribers only). Many investors have a target % ownership, and many price rounds based on a step-up from the last round's price.
The advantage of this approach is that it is the most direct comparable dataset for valuing private companies. The main disadvantage is that private market prices are slower to adjust to market conditions. Private markets are largely illiquid, so it takes time for changes in public markets to flow through to private markets. In private markets there also tends to be a strong aversion to "down rounds" (many companies would rather not raise than raise a down round, so they will try to cut costs, get non-dilutive funding or get by on unpriced insider-led rounds until they can do a more favorable deal).
As of Q3 2022, public markets valuations and volume of venture capital investment are down significantly since 2021. Because of the aforementioned factors, the deals in our database generally represent pre-crash valuations. Thus these comps will generally suggest a valuation that is higher than what a company could get in today's market.
filter by therapeutic area and development stage
This method values companies based on a probability adjusted discount to expected IPO valuation. The chart shows post-money valuation of comparable IPOs, divided by a "hurdle rate" (the hurdle rate reflects investors' target return level, taking into account the risk of the investment).
When the IPO market was active over the last few years, companies and investors generally targeted an IPO after Series B. IPO valuations were generally a 1-2x step-up from Series B valuation, and a 3-5x step-up from Series A valuation.
However, the halting of the IPO market makes this method less reliable. Investors will require a higher hurdle rate to account for the lower probability of IPO. Further, given public market deterioration, the expected valuation at IPO will be lower than what was seen in past years. How much lower is uncertain, as there have been very few major IPOs year-to-date through September 2022.
filter by therapeutic area and development stage
This technique values companies based on a probability adjusted discount to expected M&A value.
Prior to the market crash, public companies were often valued at a 4-6x discount to M&A comps (although this range of hurdle rates overstates the actual probability of being acquired, and thus overvalues companies). Different investors will attribute different hurdle rates to M&A.
M&A comps will play a larger role in valuation discussions today than in the past, when the IPO market was available as a funding option.
filter by therapeutic area and development stage
This method values companies based on the valuation of comparable public companies. We show equity value in this chart, though enterprise value or cap-to-cash can be more relevant (paid subscribers can see enterprise value and cash balance by clicking on the bar).
We apply a 30% "private company discount" to the public company valuations to account for the lack of liquidity in private shares.
In most industries, a comp set is used to benchmark valuation using a ratio like P/E, EV/EBITDA, or EV/Revenue. These metrics are less relevant for early-stage biotech companies that are years from revenue. Thus we prefer selecting a comp set based on development stage and therapeutic area, and establishing a valuation range using equity or enterprise value of the comp set (rather than applying a revenue or earnings multiple to the target company's revenue or earnings).
Many biotech public equity investors value companies based on peak sales multiples, but for early-stage private companies, we view peak sales estimates as too uncertain to be useful.
The range of valuations will generally be widest for this methodology.