The 10 Valuation Mistakes That Trigger Investor Pushback

Learning from Others' Mistakes

After hundreds of valuation engagements, we've seen patterns in what triggers investor skepticism. Avoid these common pitfalls.

Mistake 1: Hockey Stick Without Explanation

Projections that suddenly inflect upward without clear drivers look like wishful thinking.

Fix: Tie every growth assumption to specific initiatives, investments, or market changes.

Mistake 2: Ignoring Customer Concentration

If one customer represents 40% of revenue, that's a risk factor, not a success story.

Fix: Acknowledge concentration and show your plan to diversify.

Mistake 3: Cherry-Picking Comparables

Selecting only the highest-valued comparable companies destroys credibility.

Fix: Use a broad set of comps and explain why certain ones are more relevant.

Mistake 4: Underestimating Dilution

Forgetting to account for option pools, convertible notes, and future rounds.

Fix: Model fully diluted ownership and future dilution scenarios.

Mistake 5: Aggressive Terminal Values

Terminal value often drives 60-70% of DCF value. Aggressive assumptions here inflate everything.

Fix: Use conservative perpetuity growth rates (GDP growth or lower).

Mistake 6: Forgetting Working Capital

Growth requires capital. Many projections assume revenue grows but working capital doesn't.

Fix: Model working capital requirements explicitly.

Mistake 7: Inconsistent Assumptions

Projections that don't hang together logically. Revenue triples but headcount stays flat?

Fix: Build integrated models where assumptions flow through consistently.

Mistake 8: No Sensitivity Analysis

Single-point estimates suggest overconfidence.

Fix: Show ranges and sensitivities to key assumptions.

Mistake 9: Dated Information

Using last year's financials or outdated cap tables.

Fix: Ensure all inputs are current and note any staleness.

Mistake 10: Missing the Narrative

Numbers without context are just numbers. Investors need to understand the "why."

Fix: Pair every quantitative claim with qualitative explanation.

Next Steps

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