tag:blogger.com,1999:blog-8152901575140311047.post168858091831571728..comments2024-03-18T10:18:19.736-04:00Comments on Musings on Markets: The Bonfire of Venture Capital: The Good, Bad and Ugly Side of Cash Burn!Aswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-8152901575140311047.post-25666567833838627462016-09-02T19:15:16.273-04:002016-09-02T19:15:16.273-04:00I believe the analyst should be extremely careful ...I believe the analyst should be extremely careful so not to as double count the cash burn situation.<br />If a company is burning cash I would consider the growth effect and adjust the cost of capital accordingly, which would have a direct effect on FCFF.<br />Interested as I am in the firm as a going concern, as opposed to its liquidation value, I would likely assess the probability of a cash shortage and that would lead to an estimated cost of capital for future CF, but if I discount further the value of negative CF there's a risk of double dipping on the cash burn situation.<br />Prof Damodaran rightly mentions that analysts appreciate simplicity but sometimes we must go the extra mile for the sake of trying to be more precise.<br />Great article.Anonymoushttps://www.blogger.com/profile/05931486846040592586noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-1368393070218935442016-08-28T15:00:02.261-04:002016-08-28T15:00:02.261-04:00Mr. Damodaran, so you're saying that the futur...Mr. Damodaran, so you're saying that the future dilution effect is already included with the negative cash flows and one should not divide the company value by the future number of shares to calculate the value per share, but instead should divide the company value by the current number of shares? It seems counterintuitive, and there's very little material about this online; yet value per share is what matters the most (unless it's a whole company M&A transaction).<br /><br />Regards,<br />VitVithttps://www.blogger.com/profile/04993867177228945953noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-70244089326970510692016-08-28T01:31:27.322-04:002016-08-28T01:31:27.322-04:00Uber reportedly lost $1.27 Bn the first half of 20...Uber reportedly lost $1.27 Bn the first half of 2016. Financierhttps://wallstreetfinancier.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-47225121719258317072016-08-25T04:06:28.873-04:002016-08-25T04:06:28.873-04:00Hello Prof.Damodaran, Thank you for the great post...Hello Prof.Damodaran, Thank you for the great post. I suppose we also have to consider the potential exit value of the firm. For companies operating in spaces where the value of the talent, IP or the network is very unique, the cash burn may be a wrong metric. Like jet.com for instance where the sale price more than justified the cash burn. My point is that there are some areas where the company may be able to get a good ROI even with high cash burn and low growth.Musicians Anonymoushttps://www.blogger.com/profile/15928617402316238068noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-9961453816350135682016-08-23T18:36:21.707-04:002016-08-23T18:36:21.707-04:00Hi Prof. Damodaran, thanks for the very helpful po...Hi Prof. Damodaran, thanks for the very helpful post. Would you treat Biotech start-ups as a special case in any way? There, two fundamental and critical unknowns are the Phase 2/3 results, and prospects for FDA approval / denial. The clinical trial results, in particular, seem to be unpredictable as a general rule. Thank you in advance for any thoughts on this.Brad Stiritzhttps://www.blogger.com/profile/15421873063349646627noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-79350450931912846942016-08-21T10:58:36.226-04:002016-08-21T10:58:36.226-04:00Fantastic post! Would have liked for you to expand...Fantastic post! Would have liked for you to expand on the dilution effect. I believe another issue with the "dilution effect" is the diluting effects on earnings. If shares were offered at astronomical valuations; then, a shareholder would welcome new shareholders, as each new issue would generate tangible value. The problem arises when shares are issued at a steep discount, given the relatively early stages of the Company. Thoughts?Darcy Dnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-76873962135050618552016-08-20T04:33:37.166-04:002016-08-20T04:33:37.166-04:00Extremely insightful sir. I believe this technique...Extremely insightful sir. I believe this technique can also be used to identify whether an established company is about to fail. The negative cash flows would be caused due to an adverse industry scenario (long term shift in industry), or an aggressive investment strategy which does not give sufficient ROI. Swetha Pnoreply@blogger.com