Dear Bankers:
Which models do Tech bankers build if they are focused on small-cap software sector?
E.g. software firms in the below $10MM revenue stage.
1) sell side small-cap software sector deals ?
2) buy side small-cap software sector deals ?
My hunch is that they will build a lot of trading comps and transaction comps.
I am curious to know - how frequently they use DCF ?
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Well, first off, it depends if the company is cash flowing. If FCF DCF. Additionally, it will depend on growth trajectory of the company. If the company is growing rapidly or has difficult to predict cash flows, then a DCF doesn't make sense. More often than not, most of the companies that my firm works with fall into either of these buckets. In some circumstances, you may occasionally build a DCF, but on the lower end of the middle market in tech, it is not used all that often.
Not really "models." Small-cap software = high % FCF company comps -> dcf
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