How Start-up Valuation Works

by Petia Dimitrova on February 26, 2014

Last week Facebook bought WhatsApp for $16 billion in cash and stock. WhatsApp Inc. was incorporated in California in the summer 2009, which makes the company less than  five years old. It has hardly left the start-up phase.

The transaction is the largest purchase of a company backed by venture capitalists ever and the deal happened only months after a venture capital financing round valued WhatsApp Inc. at $1.5 billion. I wanted to understand how the valuation of internet start-up’s work and I found the graph below, which was published on the internet in July 2013 by FundersAndFounders. I think it is a very good illustration of how start-up funding and valuation works. The key is the dream of future revenue, based on comparison with other hyped companies. How realistic that is is another story.


About Petia Dimitrova :

Petia Dimitrova works with project coordination in Bearing. She is originally from Varna in Bulgaria where she was involved in real estate development and also in the race car sports industry. After seven years in the United States she is now back in Europe.

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