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

Conclusion

There is no denying that young companies pose the most difficult estimation challenges in valuation. A combination of factors—short and not very informative histories, operating losses, and the possibility of failure—feed into valuation practices that try to avoid dealing with the uncertainty by using a combination of forward multiples and arbitrarily high discount rates.

This chapter has described processes that can be used to apply conventional valuation models to young companies. While these approaches require us to estimate inputs that are often difficult to nail down, they are still useful insofar as they force us to confront the sources of uncertainty, learn more about them, and make our best estimates. While we may be tempted ...