What produces the variation in the estimated valuation of a private company month-on-month?
Answer
There are three distinct sources of variation in the estimated valuation of a private company:
Updates for recent private market transactions produce newer factor prices. For example, when a group of small private companies gets transacted at a premium, smaller companies’ estimated valuations change.
Updates for the annual financials of the private company produce new factor loadings. For example, a private company might report higher profitability, thus leading to a valuation change.
Updates of the financial market data produce new market factor loadings. For example, the valuation of the same industry publicly listed companies may see a sudden spike, and hence cause a valuation change.