“It’s more of an art than a science,” says the author.
Most likely, you’ve heard this expression in regard to cooking, from a friend or relative expressing their mixed results with a particular recipe. The implication is that feel and intuition are more essential than precision and calculation.
The similar approach is frequently applied to the valuation of early-stage startups. Forecasts are shaky, the roadmap incorporates significant assumptions, and the founding team has yet to be put to the test. At this point, investors will talk about valuation in general terms, which is usually a blend of rudimentary Excel and “gut intuition.”
The fascinating thing about the culinary analogy is that it becomes less true as your skill level increases. Any good chef can explain the Maillard reaction, the role of leavening agents and protein bonding, and even the angle of radial slicing for appropriately sized onion pieces.
The technique does not have to be unscientific just because the process is qualitative.
The same may be said for startup valuation, especially in the early phases where qualitative data is the focus.
Source: The Science Of Startup Valuation
