How can I estimate a private company's market cap? What records do I need to consider and how would I go about it?
Market cap is just the stock price times outstanding shares. The number of outstanding shares is decided by the issuer so the remaining question is how do you value a private company's stock price. There's 3 general classes of methods:
- Book-based (e.g. discounted cash flow, multiple of LTM revenue)
- Relative comps
- Private market demand
The first approach is not very different from how public companies are valued by analysts. However, this becomes a problem for early stage companies that may be cash flow negative or pre-revenue.
That's where relative valuation come in. This is where the company's market cap is valued based on other companies that are similar to it.
Relative comps provide very noisy estimates, so investors in private companies also price the companies based on what other investors have been willing to buy and sell the stock at.