Okay, but for CSU, when they make an investment, terminal value isn't a huge factor because they use a 20% hurdle rate. How can you go backwards and know what the market is indeed not pricing a terminal value? I hope this makes sense.
The issue with the current SaaS sell-off is that many of these companies were priced at 8-9% discount rates, meaning investors required a rosy 2035 scenario just to justify valuations. Constellation’s model is a great reminder that the higher the hurdle, the less you have to gamble on the distant future.
Okay, but for CSU, when they make an investment, terminal value isn't a huge factor because they use a 20% hurdle rate. How can you go backwards and know what the market is indeed not pricing a terminal value? I hope this makes sense.
The issue with the current SaaS sell-off is that many of these companies were priced at 8-9% discount rates, meaning investors required a rosy 2035 scenario just to justify valuations. Constellation’s model is a great reminder that the higher the hurdle, the less you have to gamble on the distant future.
Use this Discount methodology:
https://substack.com/@absolutetotalcompound/note/c-243608858?r=5g11d4