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October 30, 2024, London - Flashpoint Venture Capital, an international tech investment manager with over $500 million AUM focused on tech companies originating from Europe and Israel, has launched a free tool that helps individuals estimate the value of their shares in growth-stage private tech companies. The valuation tool is an initiative of Flashpoint’s Direct Secondary investment team. Try the tool here.
Valuing shares in private companies can be difficult because transactions are irregular and prices between them may vary widely. Flashpoint aims to make this process easier for anyone who holds shares in growth-stage tech companies, including employees, founders, and investors. Flashpoint’s methodology used in the valuation tool is based on principles of fundamental analysis, corporate finance best practices, and years of experience of its investment team.
The valuation tool produces an indicative value of one’s stake in growth-stage private tech companies based on just a few simple inputs about the business and the shares the user owns. The model matches the inputs with a selected valuation metric for comparable companies based on specific attributes of the business, like the nature of its revenue, what products it sells, and the types of clients it serves, and then runs the valuation taking into account growth and profitability.
The backbone of the tool is a long dataset of publicly traded tech companies categorised by the Flashpoint team. A series of statistical analyses were performed to arrive at a set of select valuation metrics. The underlying market parameters of the tool are being updated quarterly so that the valuation estimates take into account the constantly developing market environment. The tool processes the inputs automatically without any human intervention. The output is an indicative valuation for private use and information purposes only; it should not be used for public dissemination or reporting and does not constitute a transaction offer of any kind.
“Private company valuations are sometimes referred to as more art than science. There is no exchange with easily verifiable prices at which shares are bought or sold regularly. The share price is therefore not readily available and needs to be established. The process of establishing such a price requires expertise and might seem obscure and arbitrary to some observers, especially as valuations of private companies can sometimes have very wild swings. Nevertheless, there are certain underlying fundamental principles that guide valuations, which, if used consistently, can serve as a basis to value any tech company. Our valuation tool is built around the same principles which we use when we evaluate companies and make investment decisions” commented Lukas Harustiak, Partner at Flashpoint Secondary Fund.
Understanding the price of one’s shares can be an end in itself. The typical use case would be an employee of a later-stage start-up wanting to understand the value of their share options which the company distributes as part of an equity incentivisation program. It can nevertheless be used also to frame a discussion about a potential transaction in the shares. Shares of private companies are normally not sold on a centralised marketplace, but tend to be bought by specialised investors in bilateral transactions. Such transactions where new investors buy shares directly from the private company shareholders are often referred to as “direct secondary”. Flashpoint has been active in direct secondary transactions of growth-stage tech companies for several years and set up a dedicated fund for the investment strategy – Direct Secondary.
“We are strong believers in equity incentivisation in tech start-ups. Motivation through equity only works when people can check the value of their shares and see it grow over time. The goal of the tool is to offer people a first sneak peek into the value of their shares. We have distilled years of our experience in the field into a user-friendly simple-to-use tool. Of course, each business is different and the tool is not meant to provide an exhaustive answer, but it is a good indication based on applying fundamental principles. We welcome everyone who owns shares in a tech start-up to use it regularly and observe the growth in the value of their holdings” said Michael Szalontay, co-founder of Flashpoint.
