The Dark Side of Valuation: Valuing Young, Distressed, and Complex Businesses, Second Edition

The Dark Side of Valuation

With the estimation challenges that analysts face in valuing young companies, it should come as no surprise that they look for solutions that seem to, at least on the surface, offer them a way out. Many of these solutions, though, are the source of the valuation errors we see in young-company valuations. This section looks at the most common manifestations of what we view as the dark side in young-company valuations and how they play out in venture capital valuations.

• Top line and bottom line, no detail: It is difficult to estimate the details of cash flow and reinvestment for young companies. Consequently, many valuations of young companies focus on the top line (revenues) and the bottom line (earnings, usually equity ...