By all those news reports of privately held startups that are considered unicorns worth more than a billion: I get they reach it by +equity-liability + future earnings.

I don't see any way of reaching these values in a company that, although got 20-30 millions, has not generating any earnings. But what would be a fair objective and reasonable way of evaluating the (future earnings) part, that does not look like wild imagination?


These are marketing terms in the private equity space. Marketing because many startups that have taken VC money have declined to disclose the amount raised and never talk about the made up valuation. The regulatory exemption these securities sales fall under (Regulation D) has 'decline to disclose' checkbox on the offering size. It is really up to the companies to go out of their way to disclose and also pay for PR mentioning it.

After understanding that, you can remove the marketing speak and look at it as any other trade: someone bought shares at a price, and someone else multiplied the last traded price by all the shares in the company to come up with the market capitalization.

The person that bought shares intends to make a profit by selling shares at a higher price. This does not mean they are a rational actor. The harder it is to justify a valuation that someone else would take, the more marketing money you need to spend on creating a market. If you can hype it, "rare high growth unicorn spotted in the wild", then you can create the environment fro the company to earn or raise more money and sell shares to more people.

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