Given the absence
of a public trading market
of our common
stock, and in accordance with the American Institute
of Certified Public Accountants Accounting and
Valuation Guide,
Valuation of Privately - Held Company Equity Securities Issued as Compensation, our board
of directors exercised reasonable judgment and considered numerous and subjective factors to determine the best estimate
of fair value
of our common
stock, including independent third - party
valuations of our common
stock; the prices at which we sold shares
of our convertible preferred
stock to outside investors in arms - length transactions; the rights, preferences, and privileges
of our convertible preferred
stock relative to those
of our common
stock; our operating results, financial position, and capital resources; current business conditions and projections; the lack
of marketability
of our common
stock; the hiring
of key personnel and the experience
of our management; the introduction
of new products; our stage
of development and material risks related to our business; the fact that the option grants
involve illiquid securities in a private company; the likelihood
of achieving a liquidity event, such as an initial public offering or a sale
of our company given the prevailing market conditions and the nature and history
of our business; industry trends and competitive environment; trends in consumer spending, including consumer confidence; and overall economic indicators, including gross domestic product, employment, inflation and interest rates, and the general economic outlook.
That certainly doesn't imply that equally catastrophic losses are likely to follow (
stocks lost 85 %
of their value from 1929 to 1932 as
valuations collapsed from historic highs to historic lows, and keep in mind that even moving from a 70 % loss to an 85 % loss
involves losing half
of your money, which is why I insisted on stress - testing in 2009).
The most theoretically sound
stock valuation method, called income
valuation or the discounted cash flow (DCF) method,
involves discounting
of the profits (dividends, earnings, or cash flows) the
stock will bring to the stockholder in the foreseeable future, and a final value on disposal.
We are adept at handling sophisticated financial issues that
involve business
valuation, the value
of goodwill and intellectual property, complex
stock options, pension plans, and their tax implications.