Metrics & Performance
WACC
Weighted Average Cost of Capital — the blended cost of a company's debt and equity financing.
WACC represents the average rate of return a company must earn on its existing assets to satisfy all capital providers (debt holders and equity investors). It's calculated by weighting the cost of each capital component by its proportion in the company's capital structure. While more commonly used in mature company valuation, WACC concepts inform venture investors' required return thresholds.
In Practice
A company with 30% debt at 6% interest and 70% equity with a 15% required return has a WACC of (0.3 × 6%) + (0.7 × 15%) = 12.3%.
Why It Matters
WACC serves as the discount rate in DCF valuations and the hurdle rate for investment decisions. Understanding WACC helps VCs evaluate later-stage companies considering IPO or acquisition.
Related Concepts
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