LetterLogic

"LetterLogic is a premium lettershop services provider, specializing in outsourced printing and mailing of statements, invoices, and letters for businesses nationwide. We offer a comprehensive suite of address correction and updating services that deliver the highest mail list accuracy, proactively handle return mail, and provide web-based document access to help organizations improve customer support."

Company site: http://www.letterlogic.com/

Study this excel spreadsheet showing how the valuation was calculated
Letter Logic valuation example:

Summary of values in spreadsheet:

 * 1) In 2003, LetterLogic has annual revenues of $2,500,000. They would like to grow their revenues to approximately 10x this value over the next several years.
 * 2) Despite the company's success with revenue generation, no banks or equipment suppliers would agree to provide the company with a line of credit. All the company had was founder Sherry Deutschmann's business credit card with a $5,000 limit.
 * 3) Later that year, she met a venture capitalist who offered to invest $350,000 in her company in exchange for an equity stake of 25%. Importantly, he also guaranteed a $500,000 line of credit.
 * 4) With this line of credit, Deutschmann was able to grow here business to annual revenues of $21,000,000 by 2011. Banks routinely contact her with offers to provide loans and new lines of credit.
 * 5) To understand the valuation exercise in the spreadsheet, we first have to examine how the initial VC investment affected the company's valuation.
 * 6) Getting 25% of a company for $350,000 means that the company was worth $1,400,000 ($350,000/0.25)
 * 7) In 2011 with annual revenues of $21,000,000, we know what the top of the income statement looks like, but not the new valuation.
 * 8) Using the same pre-money valuation ratio from 2003, a company that makes $2,500,000 and is worth $1.4M would hypothetically be worth around $11.8M in 2011 when it is making $21 M. ($1.4M X $21M/$2.5M).
 * 9) Another way to determine the value of LetterLogic in 2011 is to use market comparables. Deluxe Corporation had a net income to revenues ratio of 10.2% and a P/E ratio of 8.67. Using this market comparable, the value of LetterLogic should be $21M X 10.2% X 8.67 = **$18.571.167**.
 * 10) By logical extension, the value of the venture capitalist's investment of $350,000 in 2003 is now worth $4,642,792, which represents an **internal rate of return of 1,227%**!
 * 11) By providing the right financing for growth AND a line of credit for working capital needs, both the company and the venture capitalist realized high returns from this venture.