Intentional Growth

#297: Pepperdine University Capital Markets Study on Private Company Valuations with Dr. Craig Everett

Apr 21, 2022

01:08:56

Dr. Craig Everett is on the show today to dive deep (in a way that a normal business owner can understand) into the world of valuations, where they come from, and how the research he leads at Pepperdine University is helping shed light on the middle and lower private markets.

Dr. Craig Everett is a finance professor at Pepperdine University and contributor to the Pepperdine Private Market Capital Projects and Executive Director for the Pepperdine Most Fundable Companies. In this episode, Dr. Everett explains why it's important for every business owner to understand their cost of capital, why weighted average cost of capital (WACC) matters, and why multiples are so high right now in the M&A space. Expand your financial literacy and learn more about how to view your business as a financial asset in this episode with Dr. Craig Everett.

// WATCH THE INTERVIEW ON YOUTUBE: Intentional Growth™ Podcast

What You Will Learn

Why it’s important, as a business owner, to understand how to value a business while you own it
What drove Dr. Everett to teach finance after years of consultant work
What cost of capital truly means and how to use it as a rule of thumb to determine whether you are growing the value of your business or if it is in decline
How your weighted average cost of capital (WACC) fits into clearly understanding your multiple
Dr. Everett’s definition of Company Specific Risk and all the factors that go into it
Why venture capitalists are moving back to early stage companies
Why multiples are so high right now
Why your valuation varies depending on the exit you are taking
Why people are choosing an exit to a private equity deal versus IPO

// USE YOUR FINANCIALS TO CLARIFY A PATH TOWARDS A MORE VALUABLE BUSINESS: Intentional Growth Financial Assessment

Bio:

In addition to being an assistant professor of finance, Craig Everett is also the director of the Pepperdine Most Fundable Companies Initiative, which is a prestigious national startup competition. He is the primary researcher and manager for the Private Capital Markets Project, which publishes a quarterly Private Capital Demand Index and Private Capital Access Index, leading economic indicators. Craig is one of the leading authorities in finance, specializing in private capital markets, entrepreneurial finance, venture capital, business valuation, and financial literacy.

Interview Quotes:

11:44 - “I want [my kids] to be able to sit in a meeting, discussing finance, and know what the heck is being talked about. You can’t just Google stuff in the middle of a meeting; that’ll make you look like an idiot.” - Craig Everett

15:42 - “There are always other avenues to go if you don’t qualify or don’t get an investment from on source of financing.” - Craig Everett

15:58 - “There’s pretty much always money out there. It just depends on what the terms are.” - Craig Everett

18:50 - “With private companies, it’s not that easy. The only time you really know, for sure, the value of a company is at the time of a transaction. Like an equity transaction.” - Craig Everett

19:37 - “It’s ROI, return on investment. If your company[‘s ROI] is greater than your cost of capital, you’re growing your company. Your valuation is becoming larger. If your ROI is less than your cost of capital, you’re bleeding.” - Craig Everett

20:59 - “Generally what we’re talking about is a weighted average cost of capital, where if you have bank loans, the cost of capital for those loans is the interest rate.” - Craig Everett

25:00 - “My dad wasn’t trying to maximize profit because that would have maximized his taxes.” - Craig Everett

25:25 - “A lot of business owners are like that. They’re not necessarily trying to maximize profit because they’re trying to maximize their lifestyle and minimize their taxes. But if you’re trying to sell your business, you’re going to have to reverse that.” - Craig Everett

36:27 - “The higher the discount rate the higher the cost of capital, the lower the multiple.” - Craig Everett