Hi there
Venture capital investments can be valued using the NPV method and the IRR method.
Can someone briefly explain the difference? They appear the same. Thanks!
I wrote an article on the venture capital method that covers this well: http://www.financialexamhelp123.com/venture-capital-method-funding/
Full disclosure: as of 4/25 I’ve installed the subscription software on my website, so there’s a charge for viewing the articles.
They are both used, in part, to find out the “fraction” of the business that belongs to the investor.
NPV method:
f = INV / POST
POST = exit value / (1 + r)^(n) … here is the NPV
IRR method
f = Future Value of INV / exit value
FV(INV) = INV x (1 + IRR)^(n) … here is the IRR
Note that IRR and r must be equal in order to get the same f.