‘margin of safety’ (MOS) investing was popularized by investors Benjamin Graham and Warren Buffet. In this principle, you purchased securities only when their market price is significantly below their intrinsic value. Intrinsic value can be arrived at by several methods, but all essentially involve forecasting the future. If you pay lower compared to a business’ intrinsic value, the downside to your investment will be limited even if the intrinsic value turns out to be lower."
Valuing Young Start-Ups: The venture capital model runs on probability rather than cash flows. A 10% probability of 50x returns over five years implies 33% CAGR… that math is easy. For secondary markets: (a) cash flows; and (b) its timing, take precedence. In developed economies, investments in new-age, hyper growth, cash burning businesses are treated akin to an investment in an ultra-high duration bond (a cash flow stream that will probably generate high cash flow after a long period). So long as interest rates stay very low, secondary investors happily match their ultra long-term liabilities with investments in equity of such businesses. The moment interest rates rise above a certain threshold, these equity investments become untenable to fund. And, without continuous funding, the ‘probability’ of future cash flows dwindles.
Apart from standard financial parameters and Financial Statements there are more things that explains the market behavior in awarding valuations to a business - TRAPP - Trust, Reliability, Age, Potential, Pedigree: