Venture-Backed Private Equity Valuation and Financial Statement Information

This study is the first to examine the role offinancial statement information in a broad cross-section of industries in theventure-backed, private equity market. First, a discussion of prior research onventure-backed private equity valuation is offered. Next, data on the privateand public equity market valuations and financial statement information of 502venture capital-backed firms are described. Covering the period between 1993 and 2003, the data reveal that financialstatement information can be used to explain differences across companies intheir private equity valuations and changes in these valuations over time.Revenues are value-enhancing in both the periods leading up to and followinginitial public offerings (IPO). In the pre-IPO period, each of the major cost items (i.e., research anddevelopment; markets generates, and administrative; and cost of sales) isviewed by the private equity market as having an "investment" aspect.Following the IPO, the public capital market adopts the already documentedperspective that revenues are value-enhancing and that major cost categoriessuch as research and development have a more value-diminishing role.(SAA)