With the ongoing effects of Coronavirus on the economy, private tech company valuations have been hit; investors in effect struggle to know which companies will achieve their forecast cashflows and which will not, meaning all get discounted.
Early-stage tech companies are particularly hard to forecast - and therefore value – accurately in normal times, as they have little to show in their accounts. So without real knowledge of their unique underlying qualities and prospects, in times of stress it is easier to apply a significant uncertainty/risk discount across the board. An example is Monzo, the online bank: the FT reported on 15th May that its latest cash round is priced at a 40% discount to the previous round. 40% - that is an additional discount of nearly half the previous value applied by investors as they have little way of knowing who the winners and losers will be.
That means good companies and weak ones alike are put into the same pot, and great investments can be missed. That’s neither good for the investor, the innovative company nor the wider economy.
But there is an answer to this underlying short-term uncertainty, and that is to rigorously assess the real value driver for tech companies, their innovative IP. The value of good IP will be far more stable if it is understood and so will form a solid valuation foundation. As it will be unique, it will be unlikely to act like a commodity in a squeeze and avoid across-the-board falls, unlike tangible assets such as property.
Inngot has an established set of online IP tools that evaluate the underlying IP and its worth, using standardised objective methodologies like relief-from-royalty and cost-based methodologies. Our tools are used by major UK lenders, like HSBC and others. The company itself completes the inputs, and as it is on-line there is no need for face-to-face contact. Another useful thing in the time of a pandemic.
Value your company or your target investment and understand its real value, not someone else’s perception of its value. www.inngot.com
For any questions, please contact James Andrews at Inngot