Comparable company analysis (“comps”) estimates a company’s value by applying valuation multiples from similar businesses to its financial metrics.

How it works

Analysts select a peer set—same sector, growth profile, business model, and scale where possible. Public comps yield trading multiples (enterprise value to revenue or EBITDA). Private comps come from recent venture rounds or M&A transactions disclosed in press or databases. Apply a low/mid/high multiple range to the subject company’s metric (often forward ARR for SaaS). Adjust for growth rate, margin, retention, and control premium in acquisitions. Comps complement discounted cash flow and precedent transactions in banker decks. Early startups with minimal revenue rely on narrative comps loosely; later-stage companies face tighter scrutiny on peer relevance.

Why it matters

• Founders: Fundraising slides cite comps to justify pre-money; investors re-cut the peer list. Defensible comps require honest similarity, not cherry-picking the highest multiple.
• Investors: Entry and exit pricing use comps as sanity checks against DCF and strategic value. Public market reratings flow back into private marks.
• Buyers: M&A fairness opinions and board processes document comp ranges for fiduciary defense.

Common mistake

Using mega-cap public SaaS multiples for a seed-stage vertical SaaS company without adjusting for growth, scale, and liquidity discount—produces fantasy valuations.

Related ideas

Precedent transactions, revenue multiple, EBITDA multiple, 409A valuation, and pre-money valuation sit alongside comp analysis.