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I've found that MarketCap is a quick and decent way to evaluate a public company. For private companies, the best I've found is a 409a.
It seems like, in many scenarios, both evaluation methods could be used for either company type. If one were to evaluate a company using both the 409a method and market cap method, how would the two evaluations compare? Would one almost always be larger? Is one more accurate?
A 409A and the price someone is willing to pay for a private company are not the same. A 409A for an early-stage business is usually performed immediately after a financing round. This type of valuation is just a snapshot at that moment, which heavily discounts that an early-stage company can remain a going concern. An investor looking to participate in a subsequent round of financing for a private company wouldn't typically refer to a past 409A due to the high likelihood that material events have transpired since the time at which that valuation was performed. For an early-stage company, almost all events are material.
Most of the time private companies in this situation do not have earnings and are reliant upon financing. A 409A valuation is most meaningful for employees of these companies who may need to report deferred compensation on their tax returns and need a share price in order to do so.
Investors considering companies that have profitability and the ability to forecast growth and cash flow will utilize different methods that are more forward-looking.
