The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit (Little Books. Big Profits)

by Aswath Damodaran

No historical performance data: Most young companies have only one or two years of data available on operations and financing and some have financials for only a portion of a year. Small or no revenues, operating losses: Many young companies have small or nonexistent revenues. Expenses often are associated with getting the business established, rather than generating revenues. In combination, the result is significant operating losses. Many don’t survive: One study concluded that only 44 percent of all businesses that were founded in 1998 survived at least four years and only 31 percent made it through seven years. Investments are illiquid: Even those firms that are publicly traded tend to have small market capitalizations and relatively few shares traded (low float). A significant portion of the equity is usually held by the founders, venture capitalists, and other private equity investors. Multiple claims on equity: It is not uncommon for some equity investors to have first claims on cash flows (dividends) and others to have additional voting right shares.