Abstract

This article attempts to demonstrate that Internet venture valuations are not subject to different valuation standards and rules, even though one needs to expand on the traditional valuation approach to make it applicable to internet valuations. It is shown that traditional valuation methods (such as the discounted cash flows approach) understate value twice; first, when risk changes over time and second, when flexibility matters to an investment decision. As a result, when analysts use traditional valuation approaches to value Internet companies, they may arrive at estimates of very low P/E ratios vis-à-vis observed multiples. The observed high P/E ratios may make most investors turn away from such investments, although the high P/E ratios may be justified based on the option to great riches in the future and the lower risk associated with Internet ventures’ cash flows in the future given successful progression through early phases.

Recommended Citation

Athanassakos, George (2007) "Valuing Internet Ventures," Journal of Business Valuation and Economic Loss Analysis: Vol. 2 : Iss. 1, Article 2.
DOI: 10.2202/1932-9156.1005
Available at: http://www.bepress.com/jbvela/vol2/iss1/art2