After 12 years as an entrepreneur, I got my MBA in Finance from NYU (aka vocational school for investment bankers). I then switched over to the dark side -- I became a venture capitalist / investment banker. Recently, I moved from New York to San Francisco and have been looking at technology companies in the Silicon Valley. These early-stage companies have few quantitative tools to justify their valuations. Typically, the entrepreneur finds some public company proxies that he would like to look like 5 years from now. He then applies their P/E multiple for his own firm. The VC and angel groups don't seem to be much different -- most will tell you valuation is more art than science. Here is where I pay my profound respect for Professor Damodaran (http://pages.stern.nyu.edu/~adamodar/) for giving me an abundance of modeling tools that provide the quantitative underpinning to both the upper and lower bounds to valuation based upon a company's projections. Clearly, valuation comprises of both art and science, but that does not excuse throwing out quantitative methods for anchoring a firm's valuation.
2 comments:
I agree. I just finished my under grad degree in Finance. If it wasn't for reading Damodaran's books on my own time I would be very uninterested in the field. He is always on the cutting edge and pursues questions logically.
I agree Damodaran is always on the cutting edge for valuation. He tackles real problems rationally and practically. I agree that as bad as DCF is it doesnt change the fact that a stock is always worth the PV of its future cashflows. Was Stern as incredible as everyone says it is?
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