Why Private VC-Backed Cos. Need A New Valuation Method

On Jul 1, 2022

By Ilya Strebulaev and Manuel Vasconcelos (July 1, 2022, 4:09 PM EDT) — Valuation of privately held companies can be challenging, especially when those companies are growing rapidly and involve new technologies and markets.

In contrast to publicly traded companies, there is no readily available market price, and using commonly accepted methodologies such as discounted cash flow or multiples valuation may be difficult due to lack of financial information and/or appropriate comparables.

Instead, market participants often rely on the so-called post-money valuation, which is calculated by taking the price per share paid in a given external financing round and multiplying it by the total number of shares outstanding, on a fully diluted basis, of…

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