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Early Stage Valuation
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Early Stage Valuation
A Fair Value Perspective

ANTONELLA PUCA
Copyright © 2020 by John Wiley & Sons, Inc. All rights reserved.

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Library of Congress Cataloging-in-Publication Data:

Names: Puca, Antonella, author.

Title: Early stage valuation : a fair value perspective / author
Antonella Puca.
Description: First Edition. | Hoboken : Wiley, 2020. | Series: Wiley
finance series | Includes index.
Identifiers: LCCN 2020009976 (print) | LCCN 2020009977 (ebook) | ISBN
9781119613633 (hardback) | ISBN 9781119613671 (adobe pdf) | ISBN
9781119613619 (epub)
Subjects: LCSH: Business enterprises–Valuation. | Financial
statements–Standards. | Fair value–Accounting. |
Accounting–Standards.
Classification: LCC HG4028.V3 E364 2020 (print) | LCC HG4028.V3 (ebook) |
DDC 658.15–dc23
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Cover Design: Wiley

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Printed in the United States of America

10 9 8 7 6 5 4 3 2 1
 Le Dor Va Dor
To Anna, Paola, and Anna
 Contents

Acknowledgments ix

About the Author xi

About the Contributors xiii

Preface xvii

Introduction xix

PART One
Early Stage Valuation in Context
CHAPTER 1
Early Stage Enterprises and the Venture Capital Market 3

CHAPTER 2
Fair Value Standard 33

CHAPTER 3
Capital Structure 57
Alexander Davie and Antonella Puca

PART Two
Enterprise Valuation
CHAPTER 4
Seed Stage Valuation and the Venture Capital Method 83
Andreas Dal Santo and Antonella Puca

CHAPTER 5
The Backsolve Method 111
Neil Beaton and Antonella Puca

vii
viii CONTENTS

CHAPTER 6
Discounted Cash Flow Method 141
John Jackman and Antonella Puca

CHAPTER 7
Asset Accumulation Method 177
Antonella Puca and Mark Zyla

CHAPTER 8
Non-GAAP Metrics in ESE Valuation 209

PART Three
Valuation of Financial Instruments

CHAPTER 9
Allocation of Enterprise Value 237

CHAPTER 10
Valuation of Options and Warrants 259

CHAPTER 11
Valuation of Debt Securities 277

CHAPTER 12
Valuation of Contingent Consideration 309

References 333

Index 343
 Acknowledgments

As I think of the individuals who participated in this book, I would like to recall three people
who are not with us today, but who are present in its pages: my father, Carlo Puca, who
introduced me to the world of finance on the floor of the stock exchange in Naples, Italy;
Francesco Lucarelli, who helped me find my way as a student of Economics and Finance at
the University Federico II of Naples; and Morton Kenner, who welcomed me in New York
and introduced me to the world of private investment funds in the early 1990s. I would
also like to thank the friends, mentors, and colleagues who have accompanied me in my
professional journey and have helped shape the content of this book. I especially thank, in
order of acquaintance, Maria Teresa Della Cioppa, Massimo Marrelli, Todd Goldman, David
Sung, Jeffrey Schwartz, David Kaufman, Jacques Gagné, John Budzyna, and Jeff Yager for
their guidance over the years.
In writing this book, it has been a privilege to collaborate with Neil Beaton, Alexander
Davie, Andreas Dal Santo, John Jackman, and Mark Zyla as contributors and co-authors of
some chapters. I wish to express my gratitude to the friends and colleagues who have read and
shared their views on selected chapters, and whose perspectives helped inform my understand-
ing of key issues around the topic of this book, including William Bareiss, Mark Bhasin, Keith
Black, Melissa Brady, Rich Carson, Shilpa Chandra, Chandu Chilakapati, Raffaele Cicala,
Athan Demakos, David Dufendach, Andy Dzamba, Erik Edson, Darrin Erickson, Davide
Erro, Alfredo Gallone, Jonathan Grubbs, Maria Hall, Sidney Hardee, Brett Hickey, Tom
Kehoe, Rahul Keshap, Gunes Kulaligil, Lorre Jay, Steve Jugan, Vincent LaRosa, Paul McCaf-
frey, Andrew Metrick, Elvira Passeggio, Bruno Pinto, Jerry Pinto, Ray Rath, Sindhu Rajesh,
Lorenzo Restagno, Michael Rose, Todd Rosen, Enrico Rovere, John Sawyer, Greg Siegel,
Paolo Siniscalco, Mark Smith, Christine Song, Kris Thiessen, Heidi Morrow, Bill Trent, Laura
Yunger, Jared Waters, Michael Weinberg, and my husband, Alexander Gamburd. I also would
like to thank Aswath Damodaran, whose published work has been especially influential in
certain areas of my analysis and in that of many others. I thank Sheck Cho, Elisha Benjamin,
Beula Jaculin and the production team at Wiley for their support during the production of
this book.
This book is dedicated to my daughter, Anna Gamburd, my mother, Paola Leosini, and
my grandmother, Anna Leosini, as everyday sources of wisdom, inspiration, and strength.

ix
 About the Author

Antonella Puca, CFA, CPA/ABV, CEIV, is a senior director with Alvarez & Marsal
Valuation Services LLC in New York. She specializes in the valuation of private equity
and venture-backed companies for financial and tax reporting, M&A transactions, buy-sell
agreements, estate planning, and litigation purposes. Prior to that, Antonella has been part
of the alternative investment group at KPMG/Rothstein Kass, where she helped launch RK’s
Bay area practice, the global investment fund practice of EY in San Francisco and New
York, the financial services team at RSM US, and the valuation team at BlueVal Group in
New York.
Antonella is currently serving on the Business Valuation Committee of the AICPA and as
a consultant on the CFA certification team. She has served as a member of AIMA’s research
committee and as a director of the board and treasurer of the CFA Society of New York. She
has served at CFA Institute as a consultant in the area of practice analysis and curriculum
review, and as a director in the GIPS, ethics, and professional standards group. She is currently
serving as a board member and treasurer of Snehacares Inc., a nonprofit organization that
she co-founded in 2015 dedicated to assist children with HIV AIDS in Bangalore, India.
She is a frequent presenter and author on valuation and alternative investment topics.
She holds the CFA charter and is licensed as a CPA in California and New York. Antonella
holds the Certificate in Entity and Intangibles Valuation (CEIV) and is accredited in business
valuation by the AICPA.
Antonella graduated in economics, with honors, at the University Federico II of Naples,
Italy, with a thesis in public finance, and has a master of law studies from NYU School of
Law. She has been a research fellow at the Hebrew University of Jerusalem and has held the
Italian national title in the 420 sailing class for Circolo del Remo e della Vela Italia.

xi
 About the Contributors

Neil J. Beaton, CPA/ABV/CFF, CFA, ASA, is a managing director with Alvarez & Marsal
Valuation Services, LLC. Mr. Beaton specializes in the valuation of public and privately
held businesses and intangible assets for purposes of litigation, acquisitions, sales, buy-sell
agreements, ESOPs, incentive stock options, and estate planning and taxation. He earned
a bachelor’s degree in economics from Stanford University and a master’s degree in finance
from National University. He is a certified public accountant (CPA), chartered financial ana-
lyst (CFA), and accredited senior appraiser (ASA). Additionally, he is accredited in business
valuation (ABV) and certified in financial forensics (CFF). Mr. Beaton is a frequent lecturer
at universities, is an instructor for various business valuation courses, and speaks nationally
on business valuation with a special emphasis on early stage and high-technology companies.
He has written two books on early stage company valuation, has contributed to chapters
for a number of other books on valuation and damages issues, and has written numerous
articles on these topics. He is a former co-chair of the AICPA’s Valuation of Private Equity
Securities Task Force, and a former member of the AICPA’s ABV Exam Committee and
the AICPA’s Mergers & Acquisitions Disputes Task Force. He is currently a member of the
Business Valuation Update editorial advisory board, a member of the board of experts for
the publication Financial Valuation and Litigation Expert, and on the editorial board of the
National Association of Certified Valuation Analysts’ Value Examiner.
Andreas Dal Santo, CFA, is a managing director with BlueVal Group, LLC. Mr. Dal
Santo specializes in the valuation of technology companies and diversified businesses for pur-
poses of financial reporting, M&A transactions, and business sales, partnership buyouts and
buy-sell agreements, IRC 409A, and estate and gift taxes. He earned a master’s degree in eco-
nomics and finance with distinction from Ca’ Foscari University, Venice, Italy, and has taken
coursework at the Massachusetts Institute of Technology Future of Commerce. He is a char-
tered financial analyst (CFA), accredited in business valuation (ABV) and holds an advanced
risk and portfolio management (ARPM) certificate. Mr. Dal Santo has more than 20 years of
experience in investments, business valuation, and management consulting. Prior to BlueVal,
he has managed more than $1 billion in European, North American, and Emerging Mar-
ket assets for Arca Fondi, a leading investment management firm based in Milan. As head
of global emerging markets for Arca Fondi, he has gained experience in business modeling
and valuation in a broad range of securities in a variety of sectors across different countries
and markets. Prior to that he was a specialist in North American Tech, Media, and Telecom
investments for Arca Fondi. He has served as a director on the boards of private companies
and nonprofit organizations, including the CFA Society New York and the CFA Society Italy.
Alexander Davie is a member in the Nashville, Tennessee, law firm Riggs Davie PLC.
He works extensively with technology companies, including startups and emerging growth
companies, as well as businesses in other industries, providing legal counsel on company
formation, business planning, mergers and acquisitions, technology transactions, corporate

xiii
xiv ABOUT THE CONTRIBUTORS

governance, debt and equity financings, and securities offerings. In addition, Mr. Davie
represents investment advisors, securities brokers, hedge funds, private equity funds, and
real estate partnership syndicators in numerous private offerings of securities and in ongoing
compliance.
Mr. Davie has experience serving on the boards of a number of civic organizations,
including the Nashville Business Incubation Center. He is also active in the Tennessee Bar
Association, serving on the executive counsel of its business law section.
Mr. Davie received his bachelor of arts degree in economics from the University of
Pennsylvania, graduating magna cum laude and his Juris Doctor degree from Duke University
School of Law, graduating with high honors. While in law school, he served as the managing
editor of the Duke Law & Technology Review. In addition, he received a master of education
degree in organizational leadership from Peabody College at Vanderbilt University.
John Jackman, CFA, is the president and managing director of Cortland Valuation Group.
He chairs Cortland’s oversight committee for the firm’s valuation technical standards and
plays an active role in working closely with clients, providing authoritative oversight to the
valuation engagement leaders.
He has 20 years of experience in the valuation industry, providing valuation and finan-
cial consulting services worldwide for the purposes of financial reporting, tax planning and
compliance, financing, bankruptcy, litigation, mergers and acquisitions, restructuring and
recapitalizations, leveraged buyouts, private equity and investment.
He is an expert in financial reporting requirements, including fresh start accounting,
ASC 805, Business Combinations; ASC 350, Intangibles—Goodwill and Other; ASC 360,
Property, Plant and Equipment; and ASC 718, Compensation—Stock Compensation. He has
particular expertise in the valuation of intellectual property and intangible assets and regu-
larly performs valuations and/or arm’s-length royalty rate/transfer price analyses related to
intangible assets. He has been a co-leader of a team hired as the designated expert on behalf
of the United States Internal Revenue Service in the area of intellectual property valuation.
Mr. Jackman has in-depth experience with the valuation review process with national and
regional accounting firms throughout the United States and has worked closely with inter-
national firms under the IFRS financial standards. He also performs in-depth audit reviews
of third-party valuation work product on behalf of various accounting firms. Additionally,
he remains current with industry standards and best practices by actively participating in
conferences throughout the country. He has been a formal speaker and presenter to many
organizations and professional groups on topics ranging from valuation in the context of
licensing to intellectual property and economic lives, to enterprise value and steady-state
analysis. He also develops and delivers in-house valuation training programs to select clients.
Prior to Cortland, he was chairman and managing director of the Windward Group,
Inc., which merged with Cortland in January of 2014. Preceding TWG, he was the managing
director-valuations of Cove Partners LLC, a boutique investment banking firm in San Diego,
California; and the vice president of Caliber Advisors, Inc., where he was the head of the
financial reporting group. He previously held positions with Navigant Capital Advisors and
Kroll Zolfo Cooper.
Mark L. Zyla is a managing director of Zyla Valuation Advisors, LLC, an Atlanta,
Georgia based valuation and litigation consultancy firm. He received a BBA degree in finance
from the University of Texas at Austin and an MBA degree with a concentration in finance
from Georgia State University. He also completed the Mergers and Acquisitions Program
at the Aresty Institute of the Wharton School of the University of Pennsylvania and the
About the Contributors xv

Valuation Program at the Graduate School of Business at Harvard University. He is a cer-

tified public accountant, accredited in business valuation (CPA/ABV), certified in financial
forensics (CFF) by the American Institute of Certified Public Accountants (AICPA), a certi-
fied financial analyst (CFA), and an accredited senior appraiser with the American Society of
Appraisers certified in Business Valuation (ASA).
Mr. Zyla is the chairman of the Standards Review Board of the International Valuation
Standards Council (IVSC). He recently served on the AICPA’s Forensic and Valuation Services
Executive Committee. He is a member of the Business Valuations Committee of the ASA
where he also serves as a member of the Business Valuation Standards and Technical Issues
subcommittees. Mr. Zyla is on the Advisory Council of the Master of Science in finance
program at the University of Texas at Austin. In 2013, he was inducted into the AICPA
Business Valuation Hall of Fame.
He is a frequent presenter and author on valuation issues. He has served on the faculty
of the Federal Judicial Center and the National Judicial College teaching business valuation
concepts to judges. He is author of Fair Value Measurement: Practical Guidance and Imple-
mentation, 3rd ed., published by John Wiley & Sons (2019). Mr. Zyla is also the author
of the course “Fair Value Accounting: A Critical New Skill for All CPAs” published by the
AICPA. He is also co-author of several portfolios related to fair value measurement published
by Bloomberg BNA.
 Preface

Early stage valuation addresses the valuation of companies that are in the early years of their
life cycle, are growing rapidly, and where most of the value is based on expectations about
the future. Early stage enterprises (ESEs) include companies that may have an initial concept,
design, or business plan, but not an actual product. They also include multibillion-dollar
“unicorns” with significant revenue and operations that have yet to reach profitability. The
valuation of an ESE that approaches an IPO or an M&A transaction is based on a mix of
quantitative analysis, people insight, and intuition for the company’s growth prospects.
In spite of their diversity, ESEs have unique characteristics as a group that warrant special
consideration in valuation. An ESE valuation starts from a vision of the company’s future.
The valuation of an ESE requires a dynamic model that takes into account the change in
the ESE’s operations through a period of high revenue growth and up to a stage of long-term
stable growth. At each stage of the company’s development, the three key fundamental factors
of value (the cash flows generated by the business), time (the time horizon of the projection),
and risk (the cost of capital for the firm and the target return for the investors) are going
to have a distinct relationship that needs to be captured in the valuation model. Many ESEs
will not survive through an exit event such as an IPO or a business combination/sale. The
assessment of the risk of failure is especially challenging in ESE valuation.
In this book, early stage valuation is presented under the fair value standard of Financial
Accounting Standards Board, Accounting Standards Codification Topic 820, Fair Value
Measurement, and International Accounting Standards Board, International Financial
Reporting Standards 13, Fair Value Measurement. The fair value standard is used globally
for financial reporting. It provides a common framework for the asset management industry
to value investments, make asset allocation decisions, evaluate investment manager per-
formance, and assess manager compensation. It drives the work of securities analysts in
financial research organizations around the world. While the fair value standard continues
to raise controversy in certain areas of implementation, particularly in the banking sector, it
still represents the most comprehensive set of principles with global acceptance in valuation
around the world today.
In presenting the “state of the art” in ESE valuation, this book intends to harmonize
the views of venture capital investors, investment bankers, auditors, and valuation analysts.
The book is conceived for a reader who is interested in a broad perspective on early stage
valuation. It presents step-by-step examples that can help build fundamental analytic tools
with basic algebra. Some of the methods discussed include:

■ Venture capital method

■ Scorecard methods for seed investing
■ Backsolve with option pricing methods
■ Asset accumulation method
■ Various methods for valuing intangible assets

xvii
xviii PREFACE

■ Analysis using non-GAAP metrics, including ESG metrics

■ Calibration under various methodologies
■ Scenario analysis and Monte Carlo simulation
■ Black-Scholes-Merton option pricing model
■ Binomial option pricing model

There are chapters dedicated to the valuation of preferred stock, options and warrants,
debt securities, and contingent consideration (earnouts and clawbacks).
In our presentation, we have considered current practice in early stage company
investment, transactions, and financial reporting. We have looked at guidance from aca-
demic studies, as well as from the AICPA Accounting and Valuation Guide on the Valuation
of Portfolio Company Investments of Venture Capital and Private Equity Funds and Other
Investment Companies, the Appraisal Foundation, the International Private Equity and
Venture Capital Valuation Guidelines, the International Valuation Standards and other
sources that we list in our reference section. We have considered the documentation require-
ments under the Mandatory Performance Framework (MPF) for the Certified in Entity
and Intangible Valuations (CEIV) Credential and the Application of the MPF for the CEIV
credential. We have also considered the guidance on valuation processes and governance of
the Alternative Investment Management Association.
The book provides a historical perspective on fair value and highlights how fair value
principles are at the heart of our economy.
Enjoy your journey!
 Introduction

Early Stage Valuation covers a broad range of valuation methods that reflect the variety of
early stage enterprises (ESEs), from entities that may have just started operations to companies
that have substantial revenue and have already gone through multiple rounds of venture capi-
tal financing. A recurring message throughout this book is that the approach to ESE valuation
needs to follow the company’s evolution and adapt to reflect the company’s characteristics at
each stage of development. The structure of this book consists of three parts:
Part One: Early Stage Valuation in Context lays the foundation for ESE valuation under
the fair value standard and describes the main characteristics of ESEs, including their market
and capital structure.
Chapter 1: Early Stage Enterprises and the Venture Capital Market introduces the de-
finition of ESE and provides an overview of the capital markets in which ESEs operate. This
chapter considers the objectives and target returns of venture capital investors and how they
reconcile to the historical returns realized by ESE investments. We discuss how the venture
capital market has evolved over the past decade. We identify recent trends in ESE exit strate-
gies and valuation, considering data on M&A transactions, buyouts, and IPOs over the past
decade.
Chapter 2: Fair Value Standard presents the fair value standard for financial reporting as
defined in Financial Accounting Standards Board, Accounting Standards Codification 820,
Fair Value Measurement (ASC 820) and International Accounting Standards Board, Interna-
tional Financial Reporting Standards 13, Fair Value Measurement (IFRS 13). We provide a
historical overview on the development of the fair value concept, from the medieval debate on
the “fair price” (justum praetium) in Franciscan and Scholastic theology through the writings
of Alfred Marshall, the Railroad Rate regulation of the 1890s–1910s, and the interpretation
of fair value in the wake of post–World War II economic liberalism.
We then examine the fair value definition for financial reporting under generally accepted
accounting principles (GAAP) and illustrate the income, market, and asset-based valuation
approaches under ASC 820/IFRS 13 as they apply to ESEs.
The last part of this chapter reviews some key reference material that we use in our anal-
ysis, with an emphasis on the most recent guidance on fair value implementation, including:

■ American Institute of Certified Public Accountants Accounting and Valuation Guide on

the Valuation of Portfolio Company Investments of Venture Capital and Private Equity
Funds and Other Investment Companies (the “AICPA PE/VC Valuation Guide”)
■ International Valuation Standards (IVS) 210, Intangible Assets and IVS 500, Financial
Instruments, latest edition.
■ International Private Equity and Venture Capital Valuation Guidelines: latest edition (the
“IPEV Guidelines”)
■ Appraisal Foundation: VFR Valuation Advisory #4, Valuation of Contingent Consider-
ation (“VFR #4”)

xix
Another Random Scribd Document
with Unrelated Content
These obstacles were of such a formidable character that the French
Lighthouse Commission long hesitated, when deciding on the
erection of a lighthouse at the mouth of the gulf which extends
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needle-rocks, were found, sufficiently elevated to remain constantly
above the level of the water. The interval between them was filled
up partly with rough stones and partly with masonry, until an
elevation of thirteen feet above the sea was secured; and a platform
was thus constructed sufficiently durable for the purpose to which it
was intended to put it. Here were planted the huts of the men, and
the framework of a beacon which was to carry a provisional light.
You may suppose, gentle reader, that there was no room to be
wasted. In the beacon was placed, besides the store-room and the
keeper’s lodgings, the chamber for the accommodation of the
engineer; his bivouacking hut was on the right; by blowing up a
portion of the rock, a long but narrow apartment was obtained for
the overseers; on the left, in front, stood the kitchen and larder; at
the side, the workmen’s dining-room; behind, their sitting and bed-
room, which was well filled. The beds were placed as close to each
other as possible, in two tiers. A third range was situated in the
refectory, above the table. And, lastly, on a projecting crag, to the
left, means had been found to erect a small forge, which had but
one defect, that it was often impossible to keep it lighted at high
water.
At first the workmen were allowed to supply themselves as they
pleased with provisions; but some cases of scurvy having broken
out, the engineer felt the necessity of enforcing upon them a regular
bill of fare. For this purpose he established a canteen, and bound
down its owner to keep a stock sufficient for six weeks’ supply, as a
precaution against possible bad weather, which might cut off all
communication with the mainland. At this canteen each workman
was compelled to obtain his rations. Other hygienic measures were
adopted. The hammocks were every morning exposed in the open
air, and once a week the lodging-rooms were lime-washed. Once a
week, too, the whole company bathed. Thanks to these precautions,
the terrible malady whose approach had been apprehended was
driven from the island, and the sanitary condition of so great a
number of men herded together in a very limited compass remained
constantly satisfactory.
Every day, as soon as the tide had ebbed, the artificers repaired to
work, and the hours for meals were so arranged that no interruption
took place while the tide lasted. When the rising waters forced them
to abandon the rock, a bell gave the signal. They then hastened to
cover with a cement which hardened instantaneously the portions of
masonry which had just been finished, and took refuge in their
abodes. Sometimes, however, it would happen that the sea rose with
unusual rapidity; woe, then, to the tardy! They had no other
resource but to throw themselves into the water before its depth
became dangerous; an amusement for the on-lookers, and almost
their only one. Thanks to these measures of order and supervision,
the engineer had not to regret the loss of any of the members of his
laborious little colony; although, during the course of their works,
many ships, and, still more unfortunately, several visitors, perished.

Let us now say a few words respecting the work itself.

The principal difficulty of the operation consisted in erecting the
submarine portion of the building. Once the level of high-water mark
was reached, the men could not only carry on their labours more
conveniently, but were relieved from the most critical chances.
Thenceforth they had nothing further to do with the sea than as
regarded the process of landing, and to a certain extent they built
upon an island. But on this artificial island everything depended, and
in its formation every precaution had to be studied.
The rock on which the lighthouse rests consists of an extremely hard
and resistant black porphyry. Nevertheless, as in some places it
showed numerous fissures, the work began with the removal of all
the superficial part, so as to secure a properly sound basis; and as,
at the same time, it was of great importance that the foundation
should never be exposed, M. Reynaud adopted the necessary
measures to sink it completely in the rock. With this view, an annular
surface of 38 feet in diameter, destined to support the hewn stone
work, was excavated in the porphyry to a depth of about twenty
inches, and dressed with the utmost exactitude; a labour of
excessive difficulty on account of the tenacity of the rock, but a
certain safeguard against future danger. In the groove thus
protected by the whole mass of porphyry were deposited the first
courses. As for the part of the rock corresponding to the interior of
the tower, no special necessity for extra precautions existing in
respect to it, it was left in its rough state, with simply a layer of
concrete.

With a view to that stability which has become for the engineer a
principle of elegance, the building, 155 feet in height, has been
divided into two principal parts. The first, concave at its base, is of
solid masonry up to three feet three inches above the level of the
highest tides; its diameter at the base is 38 feet, and at its summit
28 feet. The second, reposing on this impregnable foundation,
presents that measure of lightness which would have been
considered suitable for a tower of the same elevation built upon the
mainland. The thickness of the wall is 50 inches below, and 30
inches above.
As for the methods adopted by the architect, it does not seem
necessary to describe them in detail; they would only prove
interesting to readers of scientific acquirements. Yet we feel
disinclined to pass over in silence a bold conception which does
honour to M. Reynaud; namely, that, contrary to a generally
accepted idea, it is not necessary in works of this kind to bind
together all the stones as a whole, under a supposition that the sea
may sweep them away during or after the execution of the works.
Thus, in the lighthouses of the Eddystone and the Bell Rock, all the
stones in the lower courses are dove-tailed into one another after
the most ingenious designs, and held together by plugs of iron and
wood. Unquestionably, says Reynaud, these arrangements are not
without efficacy; but it is doubtful whether sufficient reasons for
them exist. Perhaps they even present more inconveniencies than
advantages, for, in addition to their cost, they necessitate a
troublesome delay in the execution of works which it is of
importance to raise as rapidly as possible above the level of the sea.
The architect of the lighthouse of the Héaux has not, then, fixed
each single stone; he has confined himself to arresting at certain
points the total mass of water which he supposed might be set in
motion during each tide. Consequently each layer was divided, for
this purpose, into a certain number of portions; twelve for the lower,
and eight for the upper courses. All the stones of these great key-
stones rested one upon another by means of salient and re-entering
edges; and, more, those of the angles were securely fastened to the
course beneath by plugs of granite. Experience has proved this
simple arrangement to be sufficient; no injury has occurred to
contradict the principle on which it was founded.
Such are the means by which this almost unequalled pharos of the
Héaux was completed. It occupied six years in erection. The first
was employed in examining the localities and perfecting the plans;
the second, in the establishment of the cabins and the formation of
the groove in the rock; the third, in the construction of the solid
masonry; during the fourth, the tower was raised as far as the first
gallery; in the fifth, a little above the cornice; finally, in 1839, the
lantern was fixed and lighted. The monument bears the following
inscription: “This edifice, commenced in 1836, was completed in
1839, in the reign of Louis Philippe.”
Rapid and successful as was the work, it was nevertheless marked
by some accidents. At the commencement of the campaign of 1836,
all the machines were in their places, and preparations were being
made to lay the first stone, when the whole was swept away by an
extraordinary wave. We have heard the engineer describe the cruel
regret he experienced on arriving at the rock, after having been
separated from it for three days by the tempest, and discovering all
his works prostrated, most of his artificers wounded, the whole of
them demoralized, and in the midst of the confusion the seamen,
who had never been willing to believe in the feasibility of the matter,
laughing aloud. He did not lose his courage, and skilfully revived the
ardour of his men at the same time that he raised anew his
apparatus. A “crab” was planted on the precipitous rock, at whose
foot the barges brought alongside, and the materials were
transported with the assistance of a railway laid down on the
precipice which separated this natural landing-place from the site of
the tower.
 ERECTION OF THE LIGHTHOUSE OF THE HEAUX.

Alone, in the midst of ocean, the lighthouse of the Héaux of Bréhat

acquires, by its very isolation, a character of severe grandeur which
profoundly impresses the voyager. As Michelet says, it has the
sublime simplicity of a gigantic sea-plant. Enormous, immovable,
silent, it seems, in truth, a defiance flung by the genius of man in
the teeth of the spirit of the storm. Sometimes, says M. de
Quatrefages, you would say that, sensible of the outrage, the
heavens and the sea league together against the enemy who braves
them by its impassability. The impetuous winds of the north-west
roar around the lantern, and hurl torrents of rain and whirlwinds of
hail and snow against its solid crystal. Under the impulse of their
irresistible breath gigantic billows hurry up from the open sea, and
sometimes reach as high as the first gallery; but these fluent masses
glide over the round polished surface of the granite, which does not
offer them any holding-place; they even fling long streams of foam
above the cupola, and dash down with a groan on the rocks of
Stallio-Bras or the shingly beach of the Sillon. But without a quiver
the lighthouse supports these terrible attacks. Yet it bends towards
them as if to render homage to the power of its adversaries. The
keepers have assured me that during a violent tempest, the oil
vessels, placed in one of the highest chambers, show a variation in
level of upwards of an inch, which supposes that the summit of the
tower describes an arc of more than a yard in extent. For the rest,
this very pliancy may be regarded as a pledge of durability. At least,
we find it in numerous monuments which have braved for centuries
the inclemencies of the season. The spire of Strasburg Cathedral, for
instance, curves, under the breath of the winds, its long ogives, and
its graceful little columns, and balances its four-armed cross,
elevated 440 feet above the soil.
The keepers of the lighthouse of the Héaux did not deceive M. de
Quatrefages. Observations made in other lighthouses, erected in the
open sea, confirm the statement they made to him. If these
monuments of human skill and industry are 130 feet in height and
upwards, their agitation becomes sufficiently perceptible to spill any
liquids in uncovered vessels, to shake the movable weights of the
mechanism, rattle against the sides of the descending tubes, and, in
a word, to suggest to visitors a vivid idea of the roll of a ship. Towers
built after this fashion are, in fact, reeds of stone which bend before
the wind; but, like the reeds, they raise their heads again as soon as
the hurricane has passed.
 CHAPTER IV.
THE GRAND BARGE D’OLONNE.
A.D. 1861.

W e must not take leave of French oceanic lighthouses—that is,

of lighthouses built out at sea—without a brief reference to
that of the Grand Barge d’Olonne. Situated on a rock of
shoal about 1.134 nautical miles from the shore, in a situation
surrounded by obstacles of every kind, where the currents are
excessively violent, and where the tempests so disturb and madden
the sea as to render nugatory all known methods of construction,
this lighthouse does the greatest honour to its architects.
Its foundation is almost completely submerged, and during high
tides the waves leap to a height, it is said, of 100 feet.
The work was undertaken in 1857, and completed in 1861; but such
were the difficulties offered by the nature of the locality, that in
these five years only one thousand nine hundred and sixty hours
could be devoted to consecutive labour. Yet, so familiar are now the
principles on which edifices of this nature must be constructed, or—
to speak more justly—so confident in their own resources are the
engineers who devise and erect them, that even this comparatively
brief period proved amply sufficient.
The entire cost of the work was 450,000 francs, or £18,000. It was
executed under the direction of M. Reynaud, inspector-general, and
M. Forestier, engineer-in-chief. The tower is built of granite, the
stones of the face being mortised and tenoned together; its
diameter at the base is 39.37 feet, tapering with a curved outline to
21.23 feet at the upper part. The door-sill is 13.12 feet above high-
water mark of the highest tides, and up to this level the tower, with
the exception of a cellar for coal and fresh water, is solid. Above the
level the tower is hollow, with an internal diameter of 11.48 feet,
and is divided into five stories by vaults of brick. The tower has a
stout cornice and parapet of granite. From the centre of its platform
rises the turret, 6.56 feet high, and 8.2 feet in internal diameter,
which supports the lantern. The internal diameter of the catadioptric
illuminating apparatus is 3.28 feet, and gives a white light with red
flashes every three minutes.
The rocky peak on which the “Phare des Barges” stands, rises about
one and a half foot above low water of ordinary spring-tides; but at
low water of neap-tides is covered to the depth of about two feet
and a half.
It is situated to the westward of the port of Sables-d’Olonne.
LIGHTHOUSE OF THE ENFANT PERDU (GUIANA).
 CHAPTER V.
THE LIGHTHOUSES OF WALDE, THE ENFANT PERDU, AND NEW
CALEDONIA.
A.D. 1859—1863—1865.

W e have spoken of the patriarch of the French lighthouses, the

venerable Tower of Cordova; it would be unfair to forget the
youngest of the family, that of New Caledonia.
Independently of the services which it renders in the region it
illuminates, this edifice has, so to speak, a physiognomy of its own:
it is built of iron, and structures of this material are sufficiently rare
to justify us in devoting a few lines to its description.
Iron is not so suitable as stone for the construction of lighthouses; it
is not so durable, it is more expensive in working and repairing, and
it affords a less efficacious protection against the thermometrical
variations of the atmosphere. Yet under certain circumstances our
engineers gladly have recourse to it. It has given rise to various
systems of construction. One of these, invented by Mr. Mitchell, has
been successfully applied in several instances in England; and has
been adopted in France for the lighthouse of Walde, kindled in 1859
to the north of Calais, on a sandy shore stretching far out into the
sea; and for the lighthouse erected on the rock of the Enfant Perdu
(coast of Guiana). It consists of iron pillars protected in the lower
part by strong metal screws, strengthened by cross bars and St.
Andrew’s crosses, and surmounted, at a suitable distance above the
sea-level, by a platform which supports the rooms of the keepers.
The whole erection is crowned by the lantern.
Since we are speaking of this pharos of the Enfant Perdu, let us say
how difficult a task was its construction. “More than once,” writes
Vivian, the chief engineer of Cayenne, “it was necessary, in order to
fix a running hawser for landing purposes, that stout and
courageous men should resolutely dash into the sea, and swim with
a rope to the shore. The risk of being flung against the rocks was
not the least they ran, for, as at the bar of the Senegal, sharks
abound in these regions. The ebb and flow render navigation very
difficult; more than one of the men were wounded, and we may say
that all sported with their lives.”
Yet here, as elsewhere, resolution, industry, and perseverance have
triumphed over every obstacle.
The framework of the pharos at Port de France, New Caledonia, like
that of the Roches-Douvres, is made up of sixteen uprights, each
composed of fourteen pannels. Each pannel is formed of T irons,
consolidated and riveted together in such a manner as to be
perfectly firm—an object fully attained, for the oscillations
experienced in lighthouses of stone are in this scarcely discernible.
These pannels are pinned one upon another, while cross bars
applied both within and without, and likewise pinned, keep the
uprights in their position. Finally, on these latter cross bars, and on
the inner sides of the uprights, rest the plates of sheet iron
constituting the walls, or sides, whose joints are covered by iron
platbands, fixed by bolts.
The height of the New Caledonia lighthouse is 164 feet, or 170 feet
if we measure from the base of the tower to the point of the
lightning-conductor. Its apparatus is of the first class, lenticular, with
a fixed white light, whose range is twenty-two miles. The spot on
which it is raised is an island of sand, such as the coral animals form
in so great and dangerous a number in the southern seas, and is
situated to the south-west of Noumea.
Constructed at Paris, and transported in
pieces to the Antipodes, the pharos of New
Caledonia was inaugurated on the 15th of
November 1865, with all the ceremonial
appropriate to so important an event. After
the benediction of the monument by the
priests of Noumea, M. the Commandant
Guillain pronounced a discourse, from which
we extract the following passage:—
“If, transporting ourselves in thought into
the different regions of the civilized world,
we examine the events transpiring there,
the most magnificent panorama is unrobed
before our eyes. Everywhere,—and this will
be the glory of our epoch,—everywhere,
great works are being executed to bring the
peoples together, to multiply their relations,
to prepare, in a word, that universal
brotherhood, destined and reserved by
Providence for future generations.”
The savages, attracted by the brilliancy of
the festival, mingled with the French
soldiers, seamen, and colonists. Did they
understand this wise and noble speech? We
fear not. But Time marches onward for
them as for us, and Time, which has already LIGHTHOUSE AT NEW
destroyed their horrible custom of CALEDONIA.
cannibalism, will one day explain its full
meaning to them. Nor is this glorious epoch far remote; wherever
beams the lighthouse-lamps, the sails of rich argosies whiten the
horizon, wafted from sea to sea by the powerful impulses of
civilization!
 BOOK V.
THE AUXILIARIES OF LIGHTHOUSES.

CHAPTER I.
FLOATING LIGHTS: LIGHTSHIPS.

L ighthousesform the first line of the coast defences which man

raises for his protection against the fury of the ocean. But
there are many parts of the coasts of every maritime country
which are unsuitable for their construction, whether they be built of
stone or iron, and which, nevertheless, stand greatly in need of
illumination. In England, especially, these points are numerous.
Among others, we may refer to the Goodwin Sands—that fatal tract
off the shore of Kent which has been the destruction of so many “tall
ships” and “adventurous mariners,” whose name has for centuries
been associated with the memory of the most deplorable disasters.
On the entire coast of England there is probably no other locality so
fatally connected with dismal stories of human suffering, and yet it
was long impossible to warn the sailor from it by any certain agency.
Lighthouses could not be stationed on its shifting sands; and it
seemed as if this one wild waste must of necessity be abandoned to
the pitiless winds and not more compassionate seas. However,
towards the close of the last century, the idea occurred to one
Robert Hamblin of substituting floating lights for fixed lights—a
lightship for a lighthouse.

Robert Hamblin was an experienced and reputable barber of Lynn,

who had married the daughter of a shipowner of that busy little
seaport, and in due time had become master of a vessel. He was
engaged in the coasting trade—in carrying coal from Newcastle to
other ports—and was thus well enabled to judge of the inadequate
manner in which the eastern coast was lighted. Accident, after a
time, introduced him to a man whose brain was full of grand
projects, but who was cruelly hampered by poverty—David Avery;
and the two, combining their resources—the one finding the money,
the other the intellect—established at the Nore a floating light on
board a ship, and assumed a right of levying tolls for the
maintenance of this new pharos (A.D. 1732).
It was impossible that the Trinity House could regard this
assumption as other than an infraction of their legal privileges,
though they were compelled to own that the lightship was
successful, and that it proved of great assistance in the navigation of
the intricate estuary of the Thames. Encouraged by the triumphant
issue of his experiment, Avery boldly announced his design of
placing a similar vessel among the waters of the Scilly Islands. The
corporation of the Trinity House, in their capacity of protectors of
British commerce, then laid a complaint before the Lords of the
Admiralty; who, however, were either unwilling or unable to act.
They next addressed themselves to the Crown, representing that it
was illegal for any private individual to levy a tax on the mercantile
marine; and acted with so much energy as to obtain a royal
proclamation prohibiting the light at the Nore. Avery, whose schemes
of acquiring almost boundless wealth were thus rudely broken up,
appeared in person before the Board, and proposed to treat with
them in reference to the Nore light. He asserted that he had
expended a sum of £2000; and his offer was, that all right and title
to the floating ship should remain for ever in the hands of the Trinity
House, but that the tolls should be levied by him and his heirs for a
period of sixty-one years, on payment of a yearly sum of £100.
These terms were accepted.[56]
Such, briefly told, was the origin of Lightships.
The lightship, be it understood, is not employed only to indicate the
position of a sand-bank, but as a beacon against perfidious currents,
submarine whirlpools, or reefs which are hidden at certain hours by
the high tide. We borrow from the lively pages of M. Esquiros a
sketch of this most useful vessel:—
“When first seen, and especially if seen from a distance, a lightship
closely resembles during the day an ordinary barque. But if
examined from a nearer point of view, a very great difference
between the two is readily discernible. The lightship floats, but it
does not move; its short stout masts are without sails, and
surmounted by large balls. Other ships represent motion; this,
immobility. We ask of vessels, as a rule, that they shall obey the
wind and the wave; we ask of the lightship that it shall resist them.
What, indeed, would happen if it drifted before the gale? Like a
meteor, the wandering light would deceive the pilot, instead of
warning him. A ship which does not navigate—a fixed and fettered
ship;—such is the ideal which the builder of the light-vessel keeps
ever before his mind; and this ideal has naturally troubled the
imagination of naval architects in more than one direction.
The form of the lightship varies according to its locality: in Ireland
the hull is more elongated than in England; but in all cases the
object to be attained is the same—resistance to the force of the
winds and waves. It is desired that in the most violent tides, in the
midst of the angriest billows, and in situations the most exposed to
the influence of the currents, it shall drag as little as possible upon
its anchor. That it may at all times and in all conditions preserve the
same maritime position, it is securely moored. Like a galley-slave,
riveted to an iron chain, it can move neither to the right nor to the
left. The length of its cable is, of course, regulated by
circumstances: at the Seven Stones, where it rides in 240 feet deep
of water, it measures upwards of a third of a mile in length. Some
years ago it was found that the addition of certain ingenious
shackles (so to speak) controlled its movements; and by various
improvements in its construction, the result has been obtained that,
slave though it be, it shall weigh as little as possible on its mooring-
chains. Usually, the moorings consist of a chain lying along the sea-
bed for 1260 feet, with an anchor of 32 cwt., in the shape of a
mushroom at either end, and a swivel in the centre, to which is
attached a veering cable of 630 feet of chain.
 THE LIGHTSHIP.

Few instances are on record of a lightship having broken loose from

its moorings, and none of its having suffered shipwreck. Each vessel
carries, for emergencies, two bower anchors of 20 cwt. and 15 cwt.;
and cables respectively 1260 and 900 feet long. Nor is it known that
the crew have, on any occasion, or whatever the fury of the
tempest, voluntarily changed their position. If, however, the ship
should be driven from its place by the irresistible force of the
elements, so that its light may become a source of danger to the
mariner, they hoist a red signal and fire a gun, and generally it is
soon restored to its normal situation. The peril of drifting, and the
presence of mind which the necessary manœuvres require in such
an event, are evidences, nevertheless, of the courage and resolution
of the men who live, day and night, exposed to the caprice of the
seas. As it is necessary to prepare for every accident, a spare vessel
is always held in readiness at the headquarters of each district;
owing to the telegraphic network which now surrounds our shores,