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Subject: UKNM: Re: UKNM :Internet Startup Values
From: Michael Waller-Bridge
Date: Mon, 20 Jul 1998 10:21:46 +0100

valuations based on DCF don't take into account marketplace sentiment, and
are in any case best applicable to calculating, as the term implies,
present value from a rationally expected future cash stream eg in a
'mature' business or a financial instrument. A company is worth what
someone will pay for it, as they say, and in the case of recent startups,
prerevenue companies, also depends of course as much on the extent/future
timing (calculated from burnrate) of distress the company may be in
cashwise, balanced with the brilliant positioning, early adopter customers,
brand building /recognition it will have already achieved. Quoted versions
find expectations hugely built in into the share price, which can seesaw
accordingly. A west coast vc recently remarked to me that, among
technology-led startups, say pre-revenue or "shipping" but not yet cash
positive, "P/E" stands for "price per engineer", and that the rate applied
by the corporate buyer in one transaction (3yr old company) two months ago
was $3m per qualified professional engineer, in the absence of other
meaningful financial metrics (ie throw away the yards of spreadsheets with
questionable underlying assumptions), simple as that ! In bull markets
cynics maintain it's best to sell such newcos before going operational !

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