Valuing startups is quite different from what you might think

Valuing a company is an art rather than a hard science. It involves a lot of guesswork and speculation of future growth, especially with startups.

There are a lot of ways of valuing the companies, but the most popular are financial ratios. Valuing a single company is hard. That’s why analysts attempt to compare a company against its competitors and related industries. Most popular ratios P/E (Price by earnings), P/S (Price by sales) and P/B (Price by book value). These ratios show the relative financial strength of the company against its past and current competitors. 
 
 The question I wanted to ask is : Can we actually value startups this way? I mean when we talk about startups should we pay a lot of attention to profits and revenues? In my opinion, it’s obvious that in this case, we should look at the future expectation from the company.

For example, let’s talk about Twilio. The company, which offers a platform for developers to add voice and text messaging capabilities to their own apps, is not profitable — it reported a net loss of $35.5 million last year. However, it’s showing strong revenue growth, with $166.9 million in 2015 revenue compared to $88.8 million the year before.

In fact, Twilio isn’t the best example. Look at the Tesla! Everybody know about Tesla. People say when you look at this company you look at the future. This company considered as one of the most innovative companies. Their stock (TSLA) is one of the blue chips stock, but still, they are not profitable. The company reported a second-quarter adjusted loss of $1.06 per share on $1.56 billion in sales. That’s more than double the loss analysts, on average, were expecting, but people keep investing in Tesla. They believe that in future this company will be profitable and their investment will bring them a huge return.
 
This data show that when somebody wants to invest in such companies as Twilio you shouldn’t watch only for financial numbers. You also must consider the trend and future expectations of the company, because even if the company may not make profits now, but will in the future.