Effective enterprise value for investors?

July 08, 2025

by an investor from Harvard University - Harvard Business School in Cambridge, MA, USA

I'm curious how investors think about actual enterprise value for search deals, especially self funded search. Most deals are marketed to investors with an enterprise value equal to what the businesses is being bought for. However, there is usually a 50%+ post-money option pool that is left out of the equation :) Do you factor that into what the effective EV is? Or, does effective EV not really matter that much (just a headline / marketing line) and you are simply looking at returns from cash flows given a set of assumptions?

Reply by an investor
from Stanford University in Mexico City, CDMX, Mexico

Thanks ^redacted‌. In my view, the effective enterprise value (EV) presented by the seller is just a reference point—not something to anchor on too heavily. For each acquisition we evaluate, we focus on building our own projections and underwriting the deal based on whether it meets our target returns, factoring in industry dynamics, risk profile and capital structure. The headline EV often overlooks things like the post-money option pool, earn-outs, or working capital adjustments, so we try not to take it at face value. What really matters is whether the investment delivers the return you’re aiming for, not whether the EV looks reasonable on paper. Make sure you’re not anchored by anyone else’s definition of EV—run your own math, and let the economics speak for themselves.

Reply by an admin
from Massachusetts Institute of Technology in Portland, OR, USA

^redacted might be able to comment here.

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