Jun 10 2007 by Jason

Do Venture Deals Include Control Premiums?

Q: My question relates to control premium with reference to VC investment in private companies. I would like to know whether when a VC invests in a private company does the investment includes any element of control premium. Also what are the factors based on which one can judge whether a deal in such case involves a control premium.

A: (Jason). VC valuations do not take into account control premiums. Unlike the public company context where control premiums are commonplace, VC deals already have control mechanisms built into the deal terms and thus the stock ownership amount is mostly irrelevant, as the terms of the deal provide all the control the VC needs. If you are interested in seeing the types of terms that provide control, please see our prior term sheet series. If you are curious about how we actually value companies, check out another prior post.