whole lot what if the conversion rate is a lot lower and only one percent of the users become paid users what if the company can improve its margins and so it keeps losing money and generating negative cash flow into the future the reality is that all these problems could turn the company into the next Titanic and so that is why you need such a high discount hereon.

startup Property Valuation Perth would say there are a few misconceptions think about everything that we’ve just been through the first one is this idea that the Doesn’t work for startups as we just saw you could certainly apply a and create a DC model for start-up it’s just not as useful because it’s so sensitive to the assumptions a DC is always sensitive to assumptions even for normal companies but it’s especially sensitive here because the company doesn’t have a real business yet another misconception is that if you use a DCFyou have to assume that the company starts generating free cash flow far into the future.

But as we saw hermit’s actually more important to assume that the company starts generating free cash flow very quickly if you don’t make that assumption and you only have the company generate free cash flow starting in say your you’re going to have a very difficult time ever getting anything reasonable for the implied value of the company simply because the present value from anything out your is going to be so low especially at a fifty percent discount worry and then finally this idea that the assumed long-term profit margins undervaluation majority of the value in a DC for start-up is going to come from the terminal.

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