October by D’Ornano + Co. - Why a new holistic framework is needed to understand Tech valuations, why Toast is succeeding, and how to make cash flows more relevant?

This is issue number 2 of our monthly newsletter dedicated to Tech x Investments.

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 sta…