Business Valuation 101: The Comparables Analysis Method
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- Опубликовано: 13 сен 2024
- We learn how to value a company based on comparables analysis aka the multiples valuation method using an example. We also discuss how this method applies to early-stage vs. late-stage companies.
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We learn about how the comparables valuation method is used to value companies in venture capital, private equity & public markets.
Normally we would say something more like "what are the company's comps", so if you hear people reference that we are talking about the multiples valuation method.
In this lesson, we talk about multiples by growth stage, public vs. private markets, liquidity considerations, and then we do an example case study to practice valuing a company using a few different comps from the public market.
Sections:
0:18 definition of the comparables analysis valuation method
1:47 context: venture capital vs. private equity strategies & growth vs value
4:57 public vs. private market multiples
6:25 comparables valuation case study for marketplace businesses
By the end of this video, you will understand how to value a business using the market multiples valuation method - I guarantee it.
If you have questions - leave a comment below and I'll try to help. Cheers!
#comprarablesanalysis #startups #marketplaces
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Interesting how much a valuation ultimately comes down to your subjective interpretation of the data, the method used, and your market thesis. More of an art than a science? Thanks again Eric!
Exactly. It is a mix of so many things....psychology, economics, market sentiment, risk taking, long term thinking, and sometimes luck. Not as simple as just some formula....
Thank you so much for this bro. I'm studying valuations on my own and you are a goldmine of a resource. When I make it in the big corporate world, I will find a way to pay back. Thanks brother
Glad to hear it! Best way you can pay me back is just pass it forward to the next person trying to figure it out
Same here bro
I'm currently working on M & A modelling
@@ajityadav7555 You are very welcome very happy to hear this stuff is helping
I'm learning so much from you bro
Amazing work as always
Happy to hear it andrei, cheers
Hello, thank you for making these videos. I just wanna ask, I work in a bank in the private equity desk, so we basically performes as LPs in many PE and PC funds, as an officer there can I use financial modeling to be able to choose the right fund?? If so plz suggest for me videos or courses to learn this skill since I just joined this desk!!!
great work
My pleasure, thanks for checking it out
hi when you say for companies VC invests in as they scale up to series a, b, c, can you please elaborate on what series a, b, c represents?
Hey Charles it obviously depends 100% on what the business is trying to do and what they're trying to build. Each startup is trying to build a multibillion-dollar business in some way and so venture capitalists just want to see that they are making progress towards their final goal with each subsequent fundraising round. So for a consumer business that would obviously be rolling out products and generating sales, but for a deep tech or a biotech business that might just be accomplishing certain technological milestones unrelated to commercializing a product. I actually go really deep into the fundraising rounds and how they're all different in my upcoming course Finance for Startups dropping next weekend. If you're interested here is a link to get on the wait list, space will be limited: www.startupfinancecourse.com/early-access
Super
Hi Eric, thank you for the clear explanation.
One thing I was wondering about is a more practical / applied one; these valuations are (partly) based on the expectation that revenue growth rates and CAC Ratio remain the same for the next years to come. How realistic is that expectation?
It's a thing I wonder about in general regarding assumptions in finance related scenario's; If you're basic assumptions & predictions turn out wrong, the whole valuation falls apart right? Or is there a reliable rule of thumb / law regarding these numbers that have been proven to be true again and again?
Also, In general I was wondering how this ties into the strategic approaches some big companies make. Like Spotify for example which has I believe never made a net profit but instead focuses on growth. Could you do a detailed analysis of how they plan on making that money back in the long term and specifically how they (the Spotify investors) would calculate that?
Looking forward to your response.
Hey mink so first to address your question around how companies can lose money and grow, in this situation they know that they are profitable on the customer lifetime value. Dig around my channel a bit and you'll see a bunch more particularly the customer retention video and then you will understand.
Regarding your questions around valuations, it seems like you're not thinking about what valuations are used for. Valuations are used for transactions in a specific moment, valuations don't "fall apart" in the future, although future valuations can certainly change . With your questions around future predictions for a business, generally your predictions will always be wrong and the business will either outperform or underperform. It's impossible predict the future. Valuations are highly highly market-driven and situational and there is definitely not a rule of thumb. They depend on overall market sentiment which is driven by psychology, interest rates, liquidity, secular trends, etc. However these market multiples are frameworks we do use to value companies against each other. For example SaaS startups used to be valued 10X ARR now I'm seeing many being valued at 100X ARR.
Eric Andrews
Aah that makes sense. I also get much better now why it is they ‘predict’ farther into the future when a market is hotter. I’ll checkout the customer retention video as well. Still new to the subject so thank you for the quick response.
@@minksol4072 happy to help and leave me a comment if you have any other questions.