Value Creation and the Entrepreneurial Business

Abstract

The need to finance high growth and manage the interests and needs of investors makes value creation a critical concern for entrepreneurial businesses. Almost any financial endeavor, such as attracting new investors or making investment decisions, necessitates the consideration of the equity value created by the endeavor. The perceived value creation, for example, has a direct effect on the percentage of the firm outside investors will require if they are to invest in the business. Measuring the value created by publicly traded businesses, depending on the assumptions made, is relatively straightforward. If public markets are at least semi-strong form efficient (i.e., equity prices reflect all publicly available information regarding a business’s true underlying value), then the closing price on a large, publicly-traded company should accurately reflect that enterprise’s value. In other words, public markets take individual investors’ beliefs of the magnitude, timing and riskiness of the business’s expected future cash flows and incorporate them into the actual equity value reported at closing. Like