Valuations are generally at an equivalent of what you would get investing the money elsewhere. For example, if you believed you could get 5% on your money elsew

Valuations are generally at an equivalent of what you would get investing the money elsewhere. For example, if you believed you could get 5% on your money elsewhere, you may be willing to value a company at 20x it's profit (price to earnings). In cases where the market is growing then you may be willing to give a higher multiple in the belief that your future returns will be higher. In cases where there is high growth and little profit, some investors choose to use a multiple on revenue instead. Revenue multiples of 5x-20x are pretty common for high growth companies. (Price to Sales) I am leaving risk adjustment out of this explanation on purpose, but if you are interested look up "efficient frontier".