How to value fintech companies?
Asking for interviewing purposes. How do you go about valuing fintech companies, particularly payment companies and robo-advisors? How does a company like Betterment get an $800mm valuation?
What about companies that are pre-revenue or with negative earnings? Aside from the technical aspects, trying to get an understanding of how bankers think about these companies. Thanks in advance!
I think one of the most common multiples among start-ups with positive earnings is PEG and they are valued through DCF as well. For those with negative earnings, they probably use Number of Users, monthly number of users, monthly subscribers etc
Bump. Can anyone shed some light on this?
Not a quick or easy answer, in part because "fintech" covers a huge range of business models. But here are a few ideas: - If they are peer-to-peer lenders, value them the way you would value a normal lender, i.e. a bank - In the case of a robo-advisor, value them the way any asset manager is valued - If the company is pre-revenue, look at the terms of the company's last financing round, and adjust it based on subsequent rounds by comps (especially if they were way up or flat/down) and as with any venture round valuation, see what you can figure out about liquidation preferences, because the real valuation is somewhere between the liquidation preference and the common, even though it's the common that gets the headline.
For peer to peer lenders, assuming they're true peer to peer lenders and not holding loans on their balance sheet, don't value them like a bank. They don't get interest income, they collect loan origination and servicing fee income. I would value them like any other services/tech company.
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