76 Ifthecashisheldbackinthefirm(ratherthanwasted),it
willaddtotheterminalvalueandthevalueofthefirmshould
not be affected.
77 Themodelseemstoassumethatthefirmwillrevertback
to beingoptimally runattheend of theilliquidity period.
Thereisnoreason whythis shouldhappen.Ifyoudidnot
expectittohappen,thevalueofthefirmwouldbebasedon
$0.60 in cash flow, growing at 4 percent a year in perpetuity:
78 Thehighercostofcapitalwasusedforonlythefirstfive
years.Extendingintoperpetuityreducesthevalueofequityto
$1.225 million, a decline of 31.77 percent.
79 Themultiplestheyusedwereallbasedonenterprisevalue
(marketvalueofequity+debt−cash)inthenumerator.They
comparedenterprisevaluetoEBIT,EBITDA,sales,andthe
bookvalueofcapital.J.Koeplin,A.Sarin,andA.Shapiro,
“The Private Company Discount,” Journal of Applied
Corporate Finance12 (2000).
80 Thereisevidenceinstudiesofmutualfundsthatsupport
this proposition. There is negative correlation between
turnoverratiosatmutual fundsand excessreturns, but the
correlation is strongest for small, high-growth mutual funds.
81 Thiswasclearlyvisibleintheaftermathofthedot-com
bustin 2001 and2002,whenventurecapitalfundsreported
muchbetterreturnsthanwouldhavebeenexpectedgiventhe
collapseinthepublicmarket.Someofthisreportingcanbe
attributedtovaluesmoothingatthefunds,butsomecanbe