Re:After WeWork, SoftBank’s Startup Bookkeeping Draws Scrutiny
by _sword on Thursday November 28, 2019 @12:20PM
(#21658860)
I used to work on Wall Street and this is spot on how we guessed at valuations for cash flow negative companies when we were trying to show bottom-up valuation analyses. Otherwise, we might compare the company to a list of peers and value it on some Enterprise Value / Sales multiple (especially in high growth software).
There isn’t a theoretical foundation for valuing lossmaking companies.
The best we can do is project forward to a cash-flow producing state, where there is good theory, and then discount that value to the present. The projection is essentially guesswork, making homework-checking by valuation consultants somewhat useless.
The only real check is other investors participating. That happened with some of Softbank’s investments, but not with others. (Adding fuel to the fire is Softbank’s habit of shutting down the secondary markets around companies it invests in.)