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joseph calderone

While I found your post very interesting I was wondering if perhaps you could shed more light on the more quantitative techniques & models you think you might use to value a new Internet technology, i.e., something like Delicious, Juice, or Newsgator.

After reading a book on Valuation (published by FT - Prentice Hall) by 2 McKinsey Graduates the general rule of thumb was that the only way to value a company at start-up is by looking at the Multiples (EBITDA, EBIT, ROIC, et cetera) of like companies in the industry. This occurred in the red part of the J-curve. Other valuation methods like Stern Stewart's EVA or McKinsey DCF were not used until the company had matured after about 5 years (presumably, future cash flows are discounted from this point onwards) after passing into the "black" area of the J-Curve.

In other words: Why would anyone ever value a subscription-based start-up with the DCF method? (I don't think they should, or should they?) Is there a whole different set of criteria used for Internet Technology products? How did Union Square Ventures develop their valuation fro Delicious before it was priced in the market? Does these variables look familiar for the kind of valuation I am talking about:

cost per acquisition, monthly average revenue per user (ARPU), free
cash flow (EBITDA), and churn (cancellations/average users per
period). Subscription models require a clear focus on acquisition
costs, strategies to drive ever higher ARPU, and customer retention
strategies. I meet with many companies who are well-versed in
subscription economics, however, their business plans often do not
sufficiently factor in the power of broadcast/ad models to challenge
their revenue models.

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