Purpose -The paper aims to investigate the views of Estonian private equity and venture capitalists about the valuation of high-growth companies and compare these with theoretical recommendations found in corporate finance and venture capital literature. Design/methodology/approach -The analysis was carried out by using the case study methodology. Structured interviews were conducted in order to present the material for analysis. The dominant model of the case study analysis is exploratory, using an explanation-building and pattern-matching technique. Findings -Main findings of the empirical study show that Estonian private equity and venture capitalists make the valuation somewhat differently compared to Western European and American ones. Some findings do not confirm the suggestions made by scientists. Research limitations/implications -Some of the required data were considered to be a business secret. The research could be extended to a broader sample. Practical implications -The findings can be used by the managers of private equity and venture capital funds for choosing appropriate cost of capital and valuation model for venture capital projects. Originality/value -The paper is the first empirical paper, investigating how Estonian private equity and venture capitalists make the valuation of target companies.

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This paper analyzes the allocation of control rights in financing private companies by private equity and venture capitalists in Estonia. Structured interviews with main providers of venture capital and private equity were conducted to collect the information about the current practice in Estonia and to highlight topical problems in this field. Due to the legal restrictions imposed on the preferred shares and convertible debt, most Estonian venture capitalists use common shares in financing high-growth firms and take similar risk position as entrepreneurs. Although, by using common shares, venture capitalists obtain voting rights, the minority ownership by itself does not provide sufficient protection of their interests. Venture capitalists increase their influence over the company through the active involvement in supervisory and management boards and detailed termsheets which include different vetoes and additional clauses.