Internet Companies

The application of traditional valuation methodologies and metrics to derive value indications for companies in the embryonic stages (startups) and embryonic industries such as Dot Coms is difficult.  Traditionally, the value of businesses has been determined through three industry recognized valuation approaches: the asset-based approach, the income approach, and the market approach.  Typically, the value of the business enterprise is determined by the ability of that company to convert its earning power into value.

Startups and Internet companies do not easily fit into these traditional approaches to value.  Many factors contribute to this difficulty such as: the lack of earnings, uncertainty of the mature state of the industry, and the unpredictability of future cash flows.  Historical economics shows us that all market pricing is based on the expectations of future cash flows, but in a startup business or immature industry, these cash flows are highly speculative with no consistent pattern or rationale.  Due to the relative newness of the business or industry, it is necessary to analyze alternative methodologies and metrics to derive value indications.

For Internet companies, often referred to as Dot Coms, the valuer must analyze the company, its market, its market penetration, its brand family (well-known companies with strategic relationships to the subject company), and its management team.  Another factor as one venture capitalist stated is, "what is the potential customers pain and what painkiller does the company have?"  The valuer working with the company's management team must gain an intimate understanding of the many factors listed.

Most Internet companies in operation today are losing money.  Therefore, the valuer must look to nontraditional methodologies.  The two most common applied to Internet companies are the price to revenues and the price to "eyeballs" methodologies.

Price to revenues - this methodology compares the price to revenue of publicly traded companies or acquisition companies to the subject company.  Care must be used to understand the differences between the subject company and the guideline companies used for comparison.  For example, Yahoo!'s high capitalization relative to its level of revenues may be explained by the contribution of its immense brand equity and recognition as the leading Web portal.  Additionally, it is one of the few Internet companies with positive earnings.

Price to "eyeballs" - this methodology more correctly known as "Price to Unique Visitors" is based on analyzing online traffic volume.  Guideline companies can be analyzed by comparing their price to the number of unique visitors to the Internet site.

Other methodologies, which may be considered, include: "revenue generation per unique page view" and "merger and acquisition transactional data."
 
The Financial Valuation Group's professionals are actively involved in the valuation of technology companies and conduct studies of pricing metrics for the software industry, which directly affects most Internet companies.  Their constant monitoring of technology companies and interaction with other professionals in the field allows them to provide our clients with the highest quality of services available.

Our services include the following:

• Internet and startup company valuations
• guideline company value indication studies
• business plan development and consulting
• incentive stock option valuations (vested and unvested)
• negotiation assistance
• royalty rate studies and
• presentation development and consulting (PowerPoint, etc.)