A01 chaf6542 06 se fm indd

Valuing  Internet   start-  ups

Desmet et al. (2000) apply traditional discounted cash flow techniques to assess the potential 

value of Internet  start‑  ups or  dot‑  coms. They point out that traditional techniques do not work 

well when profitability is negative, but revenues are growing rapidly. They suggest that for new 

companies the critical factors to model when considering the future success of a company are:

1 

The cost of acquiring a customer through marketing.

2 

The contribution margin per customer (before acquisition cost).

3 

The average annual revenues per year from customers and other revenues such as banner 

advertising and affiliate revenues. These are often measured as ARPU or average revenue 

per user, as reported for companies like Betfair, eBay and Facebook in Chapter 1.