Valuation as a Process

Valuation is perhaps one of the most fascinating fields of enquiry. It is misunderstood, it is the misfit child of finance, the evil we have to live with.

The funny thing is that while we like to place the word in a box usually associate with accounting, it tends to permeate our daily lives. In Venture Capital, valuation has lately acquired a bad name, mainly because most people fail to put all the pieces together.

Among my colleagues, I know that there are some who first of all understand that valuation is not a figure (myth) but a process of determining potential parameters of value in the context of a real transaction.

Yes, there are figures involved, but people tend to mix things up to the point that no trained person can make any sense of what is being said about valuation.

This is a rundown on all the basics in a funny yet educative format.

Valuation: The Elements

Valuation is not the engineered answer to the question: How much equity would you like to give up for £1 — infinite investment?

Imagine that you are about to value a company, what you need is to understand the context of your valuation (why are you valuing the company?), select the appropriate method, the technique used to determine some parameters (most common are Asset-based, Multiple based, and the notorious Cash-Flow), it also involves making some allowances for uncertainty and fundamental assumptions about the market, the lifecycle…