Startups Stack Exchange Archive

How does valuation of startup work?

I came across this article which says TutorVista was valued at 213 Million USD while being sold to Pearson. The site as of today says it has done 10,966,000 sessions. A session lasts at most an hour so $10,966,000 revenue of the company till now. How did investors valuate it for $213 million USD?

Answer 12399

A company is not just valued with the fore-front revenue. fore-front money that you can see. There could be other revenue generated other just the sessions.

Revenue is the amount of money a company receives in exchange for its goods and services. The revenue received by a company is usually listed on the first line of the income statement as revenue, sales, net sales or net revenue. In a financial statement, there might be a line item called "other revenue." This revenue is money a company receives for activities that are not related to its original business.

Above quote is quoted from Investopedia

Answer 12411

It depends on the interest rate and the profit the investor expects. A company making 10€ profit per year at an interest rate of 100%/a would be worth 10€, at an interest rate of 10% 100 Euro.

Adding increasing profit over time makes the calculus harder but the logik stays the same.

Note that the interest rate is arbitrarily whatever the investor considers necessary, not the market rate.

Answer 12415

Found this infographic from a site (posted by another user) which might answer your exact question.

How start-up valuation works

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