Valuation models

Valuation models are essential tools for assessing the worth of a company or an asset. Here's a detailed look at some key insights on valuation models shared by experts:

1. Fundamental vs. Relative Valuation Models:

   • Chris Burniske explains the difference between fundamental and relative valuation models. Fundamental models, like discounted value flows or net present value, focus on the intrinsic value of assets based on future cash flows. Relative valuation models compare assets to similar ones, using metrics like price-to-sales or price-to-earnings ratios 1.

2. Complexities Beyond Price:

   • Kyle Polich highlights that valuation involves more than just pricing, including personal preferences and other qualitative factors. Regression models attempt to quantify factors like proximity to public transit but are susceptible to overfitting and technical inaccuracies 2.

3. Challenges with Last Round Valuations:

   • Bill Gurley and Brad Gerstner criticize the fixation on maintaining last round valuations. They stress the importance of adjusting models based on current market conditions rather than past benchmarks, and understanding the long-term financial projections 3.

     Valuation Models

     Chris Burniske

     Ryan Adams

     Chris and Ryan discuss the difference between fundamental and relative valuation models in the context of crypto assets, highlighting the importance of considering price to sales and price to earnings ratios. They also mention the repricing and multiple expansion that some assets have experienced in the DeFi space.

     

     Bankless

     20 - The Ethereum Opportunity | Chris Burniske

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4. Startup Valuations Nuances:

   • Mark Peter Davis breaks down startup valuations, emphasizing a nuanced approach. Traditional VC methods combine pre-money valuation with investment needs, but true valuation depends on understanding equity purchased, market norms, and achieving a balanced approach over time 4.

5. Valuing Tokens in Crypto:

   • Linda Xie discusses the complexities of appraising crypto tokens. No perfect model exists, but approaches often include analyzing technology, team, community, and specific token economics like supply overhangs and usage necessities 5.

6. Valuation Fundamentals:

   • Aswath Damodaran underscores that valuation is driven by cash flows, growth, and risk, distinguishing between price (market-driven) and value (intrinsic factors). He dismisses the reliance on accountants or new valuation methods, insisting on tried and tested fundamentals 6.

Understanding these varying aspects and techniques helps form a comprehensive approach to valuation, accommodating both market conditions and intrinsic asset qualities.