How would you value a fast-growing startup that is still making losses?
What the interviewer wants to hear
- DCF with a long forecast to steady-state margins
- Revenue multiples from comparable companies or recent funding rounds
- Unit economics and cohort analysis to test the path to profit
- Scenario or probability-weighted outcomes
- Account for dilution, preference terms and cash runway
Model answer
Standard P/E or EV/EBITDA does not work when earnings are negative, so I would combine methods. First, a DCF with a longer forecast, often ten years, showing how revenue grows and margins move to a steady-state level similar to mature peers, with capex and working capital. Most value will be in the terminal period, so I would be clear about that. Second, relative valuation with EV/Revenue or EV/ARR multiples from listed peers and recent private funding rounds, adjusted for growth and gross margin. Third, I would test the path to profit with unit economics: contribution per order or customer, CAC payback and cohort retention. If these are weak, scale alone will not fix it. Because outcomes are wide, I would use scenarios with probabilities. Finally I would account for future funding needs and dilution, and for preference terms that change what each share class receives.
Can you answer it under time pressure?
Take a timed hard round and get scored on every answer.
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