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How is a company valued before IPO?
One of the most common valuation method used is Price-to-Earning multiples. This compares a company’s market cap to its annual income. To determine the value of the company, its estimated equity value is divided by its recent net income to find out the price-to-earnings multiple.
In a publicly traded company, you can multiply the number of options times the current stock price, then subtract out the number of shares times your purchase price, to get a quick sense of how much the options are worth.
How is a company’s value determined before an IPO?
Many investors who participate in IPOs are not aware of the process by which a company’s value is determined. Before the public issuance of the stock, an investment bank is hired to determine the value of the company and its shares before they are listed on an exchange .
One of the most common ways is to speak to your stock broker or find an advisory firm that specializes in pre-IPO shares and capital raisings. They can give you directions as to how to invest in these shares with a company before it goes public. You can also monitor news and alerts about startups or companies that intend to go public.
What are the benefits of an IPO?
It allows a company to quickly raise capital by attracting a vast number of investors. It also allows the company to get into the public eye, gain status, attract more attention, and potentially, also new talent. Those who choose to invest in IPOs can benefit as well.
What are the risks of a pre-IPO placement?
A pre-IPO placement mainly makes up for that risk by offering a per share price that is lower than what is expected for the IPO to offer. The risk generally arises as a result low post-IPO demand which decreases the share price.