Intentional Growth #297: Pepperdine University Capital Markets Study on Private Company Valuations with Dr. Craig Everett
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
Links and Resources:
Email: craig.everett@pepperdine.edu
The 5 Intentional Growth™ Principles (5 Videos to Help Clarify Your Vision)
Intentional Growth™ Financial Assessment
You can also reach out to me via email at rtansom@arkona.io, or on my LinkedIn.