What is Valuation?

Valuation is the process of determining a company's worth. It's the number that sets your entry price and ultimately determines your returns.Why it matters: Even the best company is a bad investment at the wrong valuation. Instagram was bought for $1B (seemed expensive then) and is now worth $100B+. WeWork was valued at $47B and went nearly bankrupt. Entry price matters.Common valuation methods:Revenue multiple: Value = Revenue × Industry multiple (e.g., 10x for SaaS)DCF: Discounted cash flow - project future earnings, discount to presentComparable companies: Value based on similar public companiesLast round pricing: Private company valued at last funding round priceKey metrics: Market cap, fully diluted valuation (FDV), enterprise value (EV), price-to-earnings (P/E), price-to-sales (P/S).Private vs public valuations: Private valuations are set infrequently during funding rounds and can become stale between events, while public markets reprice companies every second. This disconnect means pre-IPO valuations can represent both opportunity and risk. You might buy at a private valuation that looks cheap compared to public peers, or you could overpay based on an inflated last round that the public market refuses to honor at listing.