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I'm a software developer who wants to charge companies based off any reasonable metric of worth I can find.

For public companies, "Market Cap" is a pretty straight-forward choice. It can be defined as a simple function.


But for private companies, it's not so easy.

For what I'm doing, I really don't need a high level of accuracy. I could deal with a tolerance of +/- 10%, and just take the low end. But I do need something that can be checked by both parties.

These are the methods listed in the linked article:

  • CCA (comparable company analysis) - basically look up a bunch of public companies with similar attributes, average them.

  • Private Equity Valuation Metrics - appears to require a recent merger, acquisition, or IPO... but should one of those happen, there is an evaluation stage

  • Then rest are even more complicated...


My current idea is that private companies would check out their evaluation through some standardized tool and then be able to archive it.

If I had some means of coming up with a number and presenting it, would it be legally acceptable to define that as their company value in a license?

What alternatives to legally defining the value of a private company am I missing?

  • Isn't that typically something like value = assets - liabilities? Which is found on the tax returns. – CrossRoads Jan 9 at 16:28
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    Unclear why both parties would need to agree on the value of the company for this. You present the company with a quote for $X, and they can either accept or reject it. You can base your quote of your estimate of the company's worth, but I don't see why the company would need to compare your quote against their own estimate of their worth. From the company's POV, why should the value of your work be based on who you're doing it for? – Nuclear Wang Jan 9 at 16:34
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    @NuclearWang I assume this is a long term relationship. The client wants to know how their license fee will be calculated next year. – Martin Bonner supports Monica Jan 9 at 16:37
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Defining the value of a privately held company is hard (tax returns don't provide a very informative basis because accountants will tend to under-value things like "goodwill" in order to avoid paying tax). However that doesn't matter for this stack, because the only legal question is:

If I had some means of coming up with a number and presenting it, would it be legally acceptable to define that as their company value in a license?

And the answer is: absolutely yes! You are pretty much entirely free to define terms in your license as you see fit. If you want to define "company value" as meaning "the annual gross salary paid to receptionists", go for it. (You would probably need to define what a "receptionist" is in this case).

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