4 Reasons Why Market Sizing in Tech is Unique

How much is Uber worth?

You might have your hand raised, eagerly waving around in the air, so you can answer an enthusiastic $40 billion. And yes, you’re right, that was its most recently announced valuation in December 2014.But had I asked Aswath Damodaran, a New York University professor of finance and four-time published author on market sizing, he might have disagreed. In June 2014, he posted a blog entry criticizing Uber’s then valuation of $17 billion. He used traditional market sizing methods and assumptions to offer a proposed valuation of $6 billion.In response, venture capitalist Bill Gurley offered an alternative analysis of Uber’s market opportunity, coming to a valuation that was grounded in an expanded view of its target market. He reasoned that Damodaran had neglected to factor in many of the tech-specific considerations for market sizing, and guessed that his number fell far short of its potential. Since then, Uber has soared to its current $40 billion valuation.These widely divergent perspectives on Uber’s value show how market sizing that is informed by a deep understanding of the unique facets of the technology industry can mean the difference between a good valuation and one that could be 25 times as much. Whether you’re an operating executive planning your market entry strategy, a PE executive trying to maximize the value of your portfolio, or an advisor trying to understand the appropriate offer price for your client, you’ll need to understand the following challenges of market sizing in tech.

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Posted on March 23, 2015 in eBook, Insights, Private Equity, Technology Industry