The Value Of A Company Ipo

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It is not uncommon to see private companies valued as high as 100 times revenue in late stage funding. Unicorns, which have become synonymous with tech companies valued over $1 billion, are now receiving blowback after former Silicon Valley darlings lost their luster on the public market. Just this past year a number of companies and boundless unicorns saw their values slashed leading up to going public. Prior its IPO, Square was valued in the private markets around $6 billion. As we know the payment company IPO’d at just about half its private value and has watched the stock plunge over 30% in its relative short existence .

Unfortunately, determining value can be difficult with the recent glut of hyper growth start ups. Valuing a private or public company follow similar mathematical procedures, but private companies often do not disclose key financial information. That said, the mind boggling valuations over the past 5 years are more indicative of the markets than the true value of the company itself.

Process of Valuing Companies

Many of the techniques used to value private companies are not that different from public companies. The simplest method to valuing a private company is to use comparable company analysis and estimate discounted cash flow. Comparable company analysis uses actual transaction multiples and premiums paid in comparable transactions to value target private company. This approach observes transactions with similar attributes such as, industry

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