Company valuation: An overview from startups to tech companies to traditional businesses

Valuing companies – whether family businesses or fast-growing tech startups – is part art, part science. If you're a business owner wondering how to determine the value of your company or planning an acquisition, it’s essential to understand the core valuation methods and their context.

In this article, we’ll cover the main approaches (business multiples, precedent transactions, and the discounted cash flow method), explain why they differ for traditional businesses, startups, and tech companies, and outline the key documents and analyses required for valuation.

Why valuation is important

Valuation influences nearly every major business decision. Whether you're planning to sell your business, merge, or acquire another company, a thorough valuation analysis can significantly impact negotiations and the final deal. Investors and business partners are looking for consistent, reliable methods that take into account not only current performance but future growth potential. The goal is to capture not just where the company is now, but where it could go in the future.

Basic valuation methods

1. Business multiples (comparable company analysis)

This method compares the company being valued with similar publicly traded companies. The most common multiples are:

• EV/EBITDA: Ideal for established companies with predictable cash flows.

• EV/Revenue: Suitable for high-growth companies that may not yet be profitable.

💡 Example:

Imagine a family-owned manufacturing company that’s been in business for 30 years with stable profits each year. An investor might value it using EV/EBITDA, comparing it with similar manufacturers on the stock market. A young software startup, however, would likely be valued using EV/Revenue, as it’s still building its user base and expects to become profitable in the future.

2. Analysis of precedent transactions (M&A comparison)

This method looks at prices paid in similar mergers and acquisitions, reflecting current market demand and buyer sentiment.

💡 Example:

If you run a freight forwarding company with predictable revenues, you’d look at recent M&A transactions involving similar transportation businesses. On the other hand, a technology platform with a unique subscription model might be valued higher due to strategic factors like network effects or proprietary technology.

3. Discounted cash flow (DCF) analysis

The DCF method estimates future company earnings and discounts them to present value using the weighted average cost of capital (WACC). The goal is to express the intrinsic value of the company.

💡 Example:

For a traditional business like a local building materials manufacturer, it’s easier to predict future demand and costs due to the stable market. For a tech startup, cash flow projections are more uncertain, dependent on user growth and market penetration. Therefore, realistic assumptions and a solid financial model are critical.

Recommended approaches by company type

Startups

• EV/Revenue: Suitable if the company isn’t profitable yet but shows rapid growth potential.

• Precedent transactions (M&A comparison): Useful for recently acquired, early-stage companies, focusing on growth, user base, or technology.

• DCF: Useful, but minor assumptions (market size, user acquisition, etc.) can greatly affect valuation.

Tech companies

• EV/Revenue + EV/EBITDA (business multiples): A combination works well if the company has high growth and improving profitability.

• Precedent transactions: Valuable if there are deals with similar recurring revenue models or comparable tech solutions.

• DCF: Useful for predicting development costs, product expansion, and revenue growth, especially if the company has predictable income from subscriptions or licenses.

Traditional businesses

• EV/EBITDA (business multiples): Preferred for companies with stable cash flows and consistent profitability.

• Precedent transactions: Ideal for industries with recent M&A activity involving companies of similar size and financials.

• DCF: Very reliable due to stable historical data, allowing easy estimation of future cash flows and present value.

Required documents and analyses

Regardless of the method used, high-quality, up-to-date data is essential. Documentation varies depending on whether you’re valuing a traditional business, a startup, or a tech company.

For traditional companies

• Audited income statements and balance sheets for the last few years.

• Tax returns and regulatory documents.

• Industry and competition analyses.

• Operating indicators (e.g., production costs, sales data).

Imagine, for example, a family-owned company that manufactures building components. You analyze its financial results for the last 3–5 years, compare them with competitors in the market, and examine the efficiency of its operations.

For startups

• Investor presentations and an overview of previous investment rounds.

• Growth metrics and customer acquisition costs.

• Unit economics (e.g., LTV to CAC ratio).

• Market potential and scalability assessment.

Take, for example, a company that operates a food delivery app. To evaluate it, it is essential to examine how quickly it can acquire new users, how much each customer costs, and whether it is possible to expand the service to other cities or states.

For tech companies

• Subscription-related metrics (ARR, MRR, churn).

• R&D expenses and product strategy.

• User growth trends and engagement rates.

• Proprietary technology, patents, or unique knowledge.

Imagine a software company that offers cloud solutions for businesses. Important data includes customer churn rate, the rate of acquiring new users, and how effectively it manages to convert prospects into paying customers.

Conclusion: Valuing a company is not an exact science

Valuing a company blends hard data and thoughtful assumptions about future developments. While traditional businesses can rely on historical performance and a stable market, startups and tech companies focus on growth potential and innovation. Using a mix of valuation methods usually provides a more accurate picture of real value.

If you’re preparing for a significant business transaction (like a sale or acquisition), expert support in financial modeling, market analysis, and transaction structuring is crucial. A high-quality valuation becomes more than just a number – it’s a strong argument in negotiations and a long-term strategy for growth.