Methodology Overview
An accessible guide to how Lodestar derives valuations for private companies. For the complete technical specification, see the Protocol.
Approach
How we think about valuation
Private company valuation is inherently uncertain. Unlike public markets, there is no continuous price discovery. We embrace this uncertainty by providing ranges rather than point estimates, and by being explicit about our confidence level.
Our goal is not precision — it is defensibility. Every number should be traceable to inputs, and every assumption should be explicit.
Framework
Three analytical lenses
We use three independent approaches that triangulate toward a defensible range.
Transaction Comparables
What did similar companies sell for? We look at M&A transactions and secondary sales to find relevant benchmarks.
- • Similar business models
- • Comparable scale
- • Recent time period
Trading Multiples
What do public markets pay for similar characteristics? We adjust public company multiples for private company factors.
- • Liquidity discount
- • Size adjustment
- • Growth premium/discount
Scenario Modeling
What could happen? We model bull, base, and bear cases with explicit assumptions.
- • Growth trajectories
- • Margin evolution
- • Exit timing
Key Concepts
What makes us different
Inputs Grading
Not all data is created equal. We grade every input for reliability — audited financials are Grade A, management estimates are Grade B, secondary sources are Grade C. This transparency helps you understand the foundation of our analysis.
Confidence Grades
Every valuation includes an explicit confidence grade (A through C). High-confidence valuations have strong comparable data and clean financials. Lower-confidence valuations have limited benchmarks or novel business models.
Asymmetric Impact Rule
Evidence quality determines what an input is allowed to do. Tier 3 self-reported metrics and Tier 4 narrative inputs cannot raise the midpoint or narrow the confidence band— they can only trigger evidence requests or widen the band. Only Tier 1 (integration-verified) and Tier 2 (transaction-disclosed) inputs can move the midpoint up.
A press release saying “we crossed $100M ARR” cannot raise the valuation. It can only trigger a request for the Stripe export that would. This is what makes source-grading load-bearing rather than cosmetic.
See Protocol § 5.2 for the formal rule, and Lodestar Pulse for how the rule is enforced on daily market signal.
Outcome Humility
Lodestar publishes accuracy claims only when the data supports them. Cohort-level accuracy claims require 50+ resolved outcomes per cohort before publication. Until then, we publish coverage and methodology — not accuracy.
See Protocol § 3.4 and the Lodestar Index v0/v1 split.
Inputs Hash
Every memo includes a cryptographic hash of the inputs used. This creates a permanent record that can be verified later — useful for audits or disputes.