Valuing high-growth companies is both a challenge and an imperative in today’s deal-making environment, where nontraditional investors - a majority of them being PE funds - expand into the late-stage/growth segments which were solely occupied by VCs until not so long ago.
Using EBITDA as a sole metric to assess a Tech company’s valuation is a shorthand method. We substitute it with a holistic approach which provides a full picture of what drives a company’s valuation, as we’ve explained in this “Les Echos” article (..). Our approach combines a deep understanding of the key financial and operational KPIs of a Tech company (of which “ARR”), as well as of the regulatory and IP/data hurdles per each Tech vertical.
In our S1-teardown of Toast, a US-based Restaurant Tech company, we highlight the complexity of defining ARR in a dominant, usage-based pricing model.
But rest assured: once the fundamentals of a business model are clear, the gap created by today’s accounting between financial statements and what an investor needs to understand in a high-growth business can be easily resolved, as Morgan Stanley outlines in its “Categorizing for clarity” analysis.