As the American comedian Bob Hope once quipped: “A bank is a place that will lend you money if you can prove that you don’t need it.” His words ring especially true in venture capital circles.
In the simplest form, any investment into a business can be defined through a price-to-earnings (P/E) multiple, and the return generated between entry and exit can be traced back mathematically to a change in the following four fundamental factors: revenue expansion, margin expansion, multiple expansion and leverage. Most private equity strategies and business models revolve around a combination of these factors.
