There are three ways to value a business: one is to calculate earnings, the other is to calculate the assets of the enterprise, and the third is to evaluate similar enterprises. The valuation of a business cannot be completely accurate, and the result of discounted future earnings is closest to the true value of the company.

In real life, the valuation of startups is proposed by investors, and most investors will invest if they feel that the price is reasonable. But in fact, many startups have valuations that investment bank managers come up with at random, and companies will justify themselves around that number. Therefore, to a certain extent, corporate valuation is "one is willing to fight and one is willing to suffer".

Let's take a look at the financing process of an Internet social project:

Angel round of financing: The founder of the company is a serial entrepreneur, so the company received angel round financing at the beginning of its establishment.

Series A financing: 1 year later, the company has 500,000 monthly active users, a single user contributes 0 yuan, and the income is 0 yuan, and the A round of financing is obtained.

A+ round of financing: After obtaining the A round of financing, the enterprise users grew rapidly, and half a year later, the company obtained the A+ round of financing. At this stage, the monthly active users of the enterprise reached 5 million, and a single user contributed 1 yuan and earned 5 million yuan. The company's revenue mainly comes from advertising monetization.

Series B financing: One year after the A+ round of financing, the company received Series B financing. At this stage, the company has 15 million monthly active users, a single user contributes 5 yuan, and the company's income is 75 million yuan. Because enterprises have found effective ways to monetize traffic, the contribution of a single user continues to increase.

Series C financing: One year after the completion of the Series B financing, the company received Series C financing. At this stage, the company has 30 million monthly active users, and a single user contributes 10 yuan, and the company's traffic monetization methods are becoming more and more diversified. The company's revenue was 300 million yuan, and it began to make a profit. With a net profit margin of 20%, the company's revenue is 60 million yuan.

IPO: After the C round of financing, the company's revenue and interest rate will increase at a rate of 30%~50%, and it will be listed after 1 year.

This is a typical financing process for an Internet business. The founder of the company is a serial entrepreneur, who can get investment in every round, and goes public after completing 5 rounds of financing after 5 years of establishment. So, how is the valuation of a business calculated during each funding round?

Let's look at the company's financing process backwards:

After the IPO, the company's P/E ratio increased by 50 times, and the value of the stock investment decreased, with PEG>1 (P/E ratio/growth). In this way, the best time to invest is in the private equity stage.

In the C round of financing stage, different investment institutions gave different valuations, some are 50 times P/E (price-earnings ratio, stock price/earnings per share), some are 10 times P/S (price-to-sales ratio, total market capitalization/sales), and some calculate a single monthly activity as 100 yuan, but no matter which calculation method, the final valuation of the company is 3 billion yuan. Because each valuation algorithm has its own logic: for example, a valuation of 50 times the price-earnings ratio of a company proposed to be listed on the GEM; Valuation of a typical Internet company at 10 times P/S ratio; A user gives a valuation of $15~$20, etc.

In the B round of financing stage, different investment institutions give different valuation methods, and in terms of enterprise valuation, there are differences among various investment institutions: an investment institution gives a price-earnings ratio of 50 times according to the P/E valuation, but because the interest rate of the enterprise at this stage is 0, the final valuation of the enterprise is also 0. According to the P/S valuation, an investment institution gave a price-to-sales ratio of 10 times, and the calculated enterprise valuation was 750 million yuan. An investment institution is valued at 100 yuan per monthly active user according to P/MAU (stock price/number of monthly active users), and the final calculated enterprise valuation is 1.5 billion yuan.

It can be seen that the final calculation results are different depending on the valuation method. At this stage, the P/E valuation method fails, and although the P/S valuation method and the P/MAU valuation method are still valid, the calculated valuation of the enterprise is twice as different.

In the A round of financing, both the P/E valuation method and the P/S valuation method have lost their effectiveness. If calculated according to the valuation of 100 yuan per user, the enterprise valuation is 500 million yuan. At this stage, few VCs can see the development prospects of the enterprise, and most VCs have many concerns. In the end, the company chose a VC with a P/MAU valuation and a firm belief in the company's future development prospects among the few investment institutions, and accepted the investment at a valuation of 500 million yuan.

In the angel round financing stage, the company has just been established, with zero users, revenue, and profit, and P/E, P/S, and P/MAU all losing their utility. In this case, the valuation method of the enterprise is: because the founder of the enterprise is a serial entrepreneur, the investment institution gives an investment of 20 million yuan, and finally calculates the valuation of the enterprise as 100 million yuan at a ratio of 20%.

To sum up, in the angel round financing stage, there is no method of enterprise valuation available, it is a randomly determined number; In the Series A financing stage, the P/MAU method is used for enterprise valuation; In the B round of financing, the company is valued using the P/MAU AND P/S methods; In the Series C financing stage, the company is valued using the P/MAU, P/S, P/E method. A few years after listing, after the company has transformed from an emerging Internet company to a traditional enterprise, the company will be valued using the P/B (price-to-book ratio, stock price per share/net assets per share) valuation method. In real life, most companies calculate their corporate valuation in this way during the financing process.