COMPARABLES
Comparables are a common way to get a fix on the value of a new venture. Compa¬rable companies are those that have similar value characteristics to the new venture, such as risk, rate of growth, capital structure, and the size and timing of cash flows.23 The most challenging aspect of using comparables is the ability to find actual valuation numbers on other privately held firms to use as comparables. When numbers are found, they may not be accurate or the assumptions used to make the valuation may not be known. To successfully use comparables, nonfinancial measures also need to be used to gauge the value of the new venture. For example, a technology firm can be assessed based on the number of patents it holds and compared against other similar firms in that manner. Simply comparing a new venture to a public company is specious at best because the shares of a private company do not have the marketability Of public stock, so an arbitrary discount rate must be applied. In general, comparables should be used only to validate or support findings arrived at by more appropriate means.