yego.me
💡 Stop wasting time. Read Youtube instead of watch. Download Chrome Extension

Net Present Value: What Future Income Is Worth Today


less than 1m read
·Nov 3, 2024

Let’s talk about NPV. NPV is just the net present value of something. It’s when you say that stream of payments I’m gonna get in the future: what is that worth today?

So a common example of this is you're joining a startup company and you're getting stock options. The founder says, “Well, this company is going to be worth a billion dollars and I’m giving you 0.1 percent of the company; therefore, you’re getting a million dollars worth of stock.” What he’s or she’s arguing is what’s going to be worth in the future. You have to discount that back to today. You have to figure out what is that worth today, and you have to apply a discount rate or an interest rate that takes into account the massive risk the startups face.

What you end up with is the price that it’s worth today, and that’s the price at which a venture capitalist would invest in the company today. So if that founder just raised a round at ten million dollars and that company’s only worth one percent of what the founder's arguing, your million-dollar package is actually worth ten thousand dollars.

So NPV calculations, at a very rough level, you should be very comfortable doing in your head.

More Articles

View All
Responsibilities of citizenship | Citizenship | High school civics | Khan Academy
In addition to citizenship rights, citizens also have responsibilities and obligations. Now, obligations are those activities that citizens must do or they’ll face legal repercussions. But responsibilities are activities that citizens should do to be good…
Ron Conway at Startup School 2013
Good morning! Good morning! Mic, mic works. Okay, well, thanks for coming, Ron. We’re delighted to have you here, and we’re going to jump right into things. Um, I wanted to talk about Twitter first because Jack Dorsey is coming here later, and they’re go…
Engineering with Origami
Engineers are turning to origami for inspiration for all types of applications, from medical devices to space applications, and even stopping bullets. But why is it that this ancient art of paper folding is so useful for modern engineering? Origami, liter…
National savings and investment | Financial sector | AP Macroeconomics | Khan Academy
In this video, we are going to use the GDP equation that we have seen before to think about how national savings relates to investment. Really, it’s a way to algebraically manipulate things to ensure that it fits with our intuition. So another way to thin…
Can a Haircut Change Your Life? | The Story of Us
I’m in London to meet Joshua Coombes. He’s a hairdresser. And he believes small acts of love can make a big impact. Joshua hopes he can help the homeless, not by offering them money or food but by giving them a haircut. The reason I started cutting hair …
"The SECRET To Business Success In 2021 IS THIS!.." | Kevin O'Leary & Gary Vee
So in this crazy outcome that I could have never foreseen, 80% of the portfolio, even though revenues are down, are actually ahead of free cash flow forecasts. You cannot, people, you can’t lie to them. You have to be totally transparent, whether that’s g…