Measuring the Pie Interestingly, the slick techniques and computer programs that estimate value of traditional companies rarely work for technology or Internet start-ups. For the old economy companies, investors would review past earnings, interest rates and exchange rates. The sophisticated valuation experts might also use option pricing models. In the new economy, the pros often forego these tried and true methods. A technology start-up has no earnings.
Interest rates have less impact on the capital structure.
Without manufactured goods, exchange rates mean less. I have found that the savvy players nevertheless use a few general methods to estimate value. Often, the investors will calibrate the worth of the company based on milestones completed. For each milestone achieved, the risk to the venture capitalist falls, and the value of the enterprise rises. The first rung is the quality of the idea.