Question

What are the challenges of valuing an early-stage company?

Answer 1

Answer:

With a relative valuation (using the market approaches), the analyst looks outside of the young company to similar companies and/or related transactions.

...

These characteristics include:

No history. ...

Small or no revenues. ...

Dependence on private equity. ...

Survival. ...

Multiple claims on equity. ...

Illiquidity of investments.

Answer 2

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Valuing an early stage company is a big challenge mainly because of the short history, limited scope or lack of financial data and many uncertain factors that impact its future development. Usually, the younger the company, the more difficult it is to valuate it which is more like art than science.

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