Thanks to the low interest rates and large fiscal stimulus during the COVID-19 pandemic, company valuations soared to new heights in 2021—and the VC ecosystem is still recalibrating.
As these lofty valuations fade, startups are feeling the pressure to continue growing while also achieving modestly positive cash flow. The alternative? Face the grim reality of a down round—a post-money valuation that drops lower than a pre-money valuation.
For investors and startups alike, accurate valuation data is more important than ever.
What is a valuation?
Simply put, a business’s valuation is an analysis of its worth. For a valuation to be calculated, all areas, units, and departments of a company will be thoroughly evaluated to determine the sum total economic value.
This process can include evaluations of management, capital structure, earning prospects, assets, and more. Financial statements are pored over, cash flows are forecasted, and the business’s performance is benchmarked against comparable companies.
Why do accurate valuations matter?
Having the right data empowers both investors and startups when buying and selling, especially as the divide between valuation aspirations and the realities of rising financing costs grows deeper.
For investors using valuations to compare companies and similar transactions, accurate data is often the difference between striking a good deal and overpaying, or even missing out entirely.
For startups, incorrectly inflated valuations are just as much of an issue. When a valuation comes in too high, it can be challenging for a company to grow into it and meet revenue expectations. This often results in a down round, which can be difficult for startups to overcome.
Whichever side of the deal flow you’re on, accurate valuation data makes tracking competitors, doing due diligence, and sourcing new deals more successful for all parties.
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PitchBook has enhanced valuation intel that helps us win.”—Jaime McNally, Ventures Director, FrontFundr |
Valuations on the PitchBook Platform
The PitchBook Platform combines best-in-class private transaction data—including the world’s largest source of deal multiples and valuations—with public fundamentals and consensus estimates. We enable clients to build more accurate comps faster, and our data eliminates time-consuming processes for analysts, especially those using legacy tools.
422,752
total valuations143,218
valuations calculated using proprietary methods18,911
valuations added through direct outreach260,623
valuations added through secondary research| “ |
What I love about PitchBook is that it has the cleanest, most robust data. Every detail is there.”—Claudia Rowe, Growth Investor, Balderton Capital |
How do we calculate valuations?
PitchBook gathers valuations from a variety of public sources and direct company outreach. If a valuation is not available, our dedicated team of valuation researchers will calculate one.
By using information sourced from corporate and regulatory filings, our team is able to reach a conclusive valuation number that generally falls within a 5-10% margin of error, according to feedback and ongoing QA testing.
How do we estimate valuations?
When the data required to calculate a valuation is not available in a company’s regulatory filings, PitchBook research teams may estimate valuations based on data available in public news sources.
For example, if a press release states that an investor purchased 10% of a company for $10M, then we will update the post-money valuation on the round to $100M and mark the updated valuation as estimated.
How do we ensure our valuations are accurate?
Quality assurance is the critical last step of any addition to the PitchBook Platform.
When our research team receives or calculates new information about a company, they will contact the company’s executives and investors to verify the data. At this point, the company can also update and correct any information in its PitchBook profile, including its valuation.
Our research team vets all updates made by companies and investors, ensuring that the information submitted is within reason. All valuations and round amounts are compared to regulatory filings so as not to allow for exaggerations.
The valuations team also has an internal QA process to track and evaluate accuracy. A senior valuations specialist reviews 15% of the team’s total production. Additionally, our secondary research team performs a check-in twice a year, scrubbing company profiles for any updated information that may have become available.
Other auto-QA processes are also in place. Our system flags new valuations that may need more attention, and a senior valuations specialist will evaluate them. These scenarios include:
- A valuation added to a profile that is in the top 1% of views
- A valuation that is 3x higher than the last added valuation
- A valuation that results in a down round
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Being a generalist tech fund, the investors tend to have a vast range of sector interests and want to dive deep when assessing new startups. PitchBook allows us to unlock multifacited and reliable data that helps with this day-to-day research.”—Laura McGinnis, VC Investor, Balderton Capital |
