---
title: "What Is First Chicago Method?"
term: "First Chicago Method"
description: "The First Chicago Method is a venture valuation approach combining multiple exit scenarios—bad, base, and good—with probability weights to estimate expected present value of an investment."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/first-chicago-method
---

# What Is First Chicago Method?

> The First Chicago Method is a venture valuation approach combining multiple exit scenarios—bad, base, and good—with probability weights to estimate expected present value of an investment.

**The First Chicago Method** is a scenario-weighted valuation technique—originating with First Chicago Corporation's venture practice—that estimates investment value by discounting several discrete exit outcomes back to present value and combining them with assigned probabilities.

### How it works

Analysts build three (or more) cases: conservative exit (low multiple, delayed timing), base case, and upside case. Each projects revenue, margins, capital needs, and [exit multiple](/glossary/exit-multiple) through an [exit scenario modeling](/glossary/exit-scenario-modeling) waterfall. They assign probabilities—perhaps 25% / 50% / 25%—compute MOIC or IRR per case, and take the weighted average to infer fair entry price or current mark.

The method suits early-stage companies where single-point DCF misleads. It complements comparables and recent round pricing. Limitations: probabilities are subjective and teams may anchor cases narrowly around current narrative.

Later practitioners extended the framework with more scenarios and simulation, but "First Chicago" remains shorthand for multi-scenario VC valuation.

### Why it matters

- **Founders:** When investors walk through bear/base/bull, recognize First Chicago logic—push back on probabilities if your operating plan supports a different mix.
- **Investors:** Documents valuation discipline for LP reporting and reserves; highlights which scenarios must occur to return the fund.

### Common mistake

Treating probability weights as precision. Small changes in upside probability swing present value dramatically—sensitivity tables matter more than false decimal accuracy.

### Related ideas

See [exit scenario modeling](/glossary/exit-scenario-modeling), [exit multiple](/glossary/exit-multiple), DCF, and MOIC.

## FAQ

### What is the First Chicago Method in simple terms?

You value a company by imagining a few different futures— weak, expected, and strong exit— assigning odds to each, and averaging the results back to today’s dollars.

### Why does the First Chicago Method matter?

It forces probability-weighted thinking instead of one heroic forecast. VCs use it to justify entry price and reserve decisions when outcomes are highly uncertain.


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Source: https://venturecapitaltracker.com/glossary/first-chicago-method