Beta values

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WizardJoe

posts: 6

Sep 27, 2008 7:24 AM ET Quote Report Abuse

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I`m writing a business plan and would like to determine the beta values for similar companies. The problem is that almost all are private. Should I just use the beta values of the nearest public companies, or is there a way to estimate beta for private companies? Could I use their history of previous valuations and compare this to the market, for example?

robertj

posts: 1458

Sep 27, 2008 12:19 PM ET Quote Report Abuse

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WizardJoe,

Since beta is mathematically derived as a ratio between the return on the individual security vs the market as a whole - the individual security needs to have some "history" over time.

While it may be an "interesting" exercise, I wouldn`t expect its existence to have any meaningful positive impact on potential investors and thus I wouldn`t invest much time in developing it.

Again, I would not recommend discussing the valuation (past, present of future) in a business plan.

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WizardJoe

posts: 6

Sep 27, 2008 2:49 PM ET Quote Report Abuse

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RobertJ

I meant valuation in this case as a means of estimating beta (since I thought that if valuation represents a possible equity value then it could be compared to the market as a whole). Just merely a thought experiment, I will take your advice on it.

My goal is to sell the business after a given period of time. I also have an advertising model that will generate revenue. I want to show investors that they can obtain a sizable return this way (through advertising revenue + selling the business). How do I do this?

robertj

posts: 1458

Sep 30, 2008 1:48 PM ET Quote Report Abuse

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Wizardjoe,

I`d begin by developing a business plan that describes how the business will be built and how profits will be generated. If (in addition to the above) you can show market and business scalability - that would be a plus.

Once you have a road map to a solid, profitable business - you can examine the capital aspects including:

1. How much you need

2. How it will be used

3. Ways to provide the ROI to your investors

3. What you can/will offer in exchange

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