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I've read this question: How do I value a private company's market cap?

Assume: "market cap" = outstanding shares * price per share.


Right now, I'm trying to outline a license for some software I've created. What I'd like to do is tier based pricing, where the tiers are defined by market caps. The license will be on the honor system. I don't need to be able to check the companies market cap, but I do need them to be able to figure it out.


How difficult is it for a private company to compute their own market cap?

What sort of blockers or hurdles are there in which a company would be unable to estimate this number?

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    $\begingroup$ This is more of a corporate finance question than quant finance. The short answer is that this is incredibly difficult and I wouldn't recommend it. I've seen software licenses tiering based on revenue and/or number of employees (e.g, "less than one million in annual revenue and no more than five developers"). $\endgroup$
    – Helin
    Jan 9 '20 at 20:35
  • $\begingroup$ Do you know a better stack exchange for this type of question? If not, could you perhaps elaborate on what makes it difficult? $\endgroup$
    – Seph Reed
    Jan 10 '20 at 0:08
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    $\begingroup$ I can't think of a good one. The reason is that private company valuation is highly subjective. Just think about the recent WeWork debacle; one moment it was worth 47 billion; the next moment it was <8 billion... So even a company like WeWork, which has teams of sophisticated investors and bankers valuing the company, can't get its valuation right... $\endgroup$
    – Helin
    Jan 10 '20 at 22:17
  • $\begingroup$ Hmmm... subjective, but I'm more willing to believe a margin of error that large indicated foul play. My CEO friend seemed pretty confidence in the simplicity of computing his own private market cap, but that might be because he just finished an A round. $\endgroup$
    – Seph Reed
    Jan 10 '20 at 23:39
  • $\begingroup$ All I can say is that based on personal experience, what you're proposing isn't a simple exercise (To a certain extent, it's simple because most startups just make up a random number...). Why would you opt for something arbitrary when there are much more clearcut metrics (e.g., revenue, # of employees) right? $\endgroup$
    – Helin
    Jan 13 '20 at 9:16

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