Strategy is Mastery.

Think about the price you want to buy or sell a private business for.

This leads us to a simple yet very important question:
"How do you value a private business?"

Private Equity is not a transparent asset class to begin with. Furthermore, there are so many misunderstandings and misconceptions about how private markets actually work, and massive variations in manager capabilities. Dive into much of the text on alternative capital, and you can quickly find yourself in a deep academic paper, which may not necessarily be useful for the practitioner, or in other cases you stay at a level that is too superficial to truly deepen understanding and improve outcomes.

With this in mind, I was delighted to crack open the brand new book from author and Saïd Business School, University of Oxford professor Ludovic Phalippou, "Valuation in Private Markets, A Wonderland Adventure into the Essence of Finance." Although you cannot judge a book by the cover alone, I was intrigued to see a scroll next to Alice which read "The Rules are simple, but simple is not easy."

Hmmmm.....

And when we "meet" Alice, beginning in the prologue, there are a few key words that are very important to remember: "Valuation is not about truth but about discipline."

Yet just a few pages in, the author has us building cash sweeps, and then quickly diving into Modigliani and Miller and their Nobel Prize. You also get some gems such as "A good model is not one that produces a pleasing return, it is one that survives the House of Covenants intact." The book at a compact and yet thorough 160 pages delivers something very impressive, tackling Venture Capital, Growth Equity, Leveraged Buyouts, and private equity real assets. It is also very timely, in that it explores how generative AI is "reshaping how we model value."

My favourite chapters: "Alice and the LBO Algebra, showing how growth, leverage, valuation, and exit multiples all interact," and "Early Stage: When Data Vanishes & Hope Shows up, which explains how valuation becomes ownership design, governed by milestones, dilution and a portfolio logic." Do you want to improve and update your logic on valuation in Private Markets? I recommend you get and read this book today. If only for the sentence "The thicker the jargon, the more we can charge."

Some great industry case studies are included too, starting with Hilton, Marriott, and the hotel business, and progressing to "The Five questions to ask to accept an EBITDA." Importantly, while explaining how AI technologies are improving the potential and speed of models, the closing paragraph has a clear warning: "The science of valuation did not eliminate judgment."

How well does your Strategy reflect new and improved understandings about private valuations, investments, and exits? Where will you leverage asset classes including Venture, Private Equity, and the variety of debt structures spanning from the conventional to the most exotic of them all?

Strategy is Mastery.