1. Subjectivity in Valuations: To the extent that it will be founded on estimates of future cash flows and the related risks, valuation is subjective. Various investors are likely to have varying views about possible growth and risk and, thus, subjectivity in valuations is pronounced. The issue is even more pronounced for early-stage companies, for whom a shorter historical record makes it impossible to predict future performance with much accuracy.
2. Impact of Market Conditions: Market conditions can be quite extreme, and research indicates how these conditions can play up within the overall valuation of a company. Economic conditions, rates, and dynamics of certain industries come into play. A recession or industries that are contracting could create an environment of downward pull within valuations even though a company could be standing out based on its own merits. Conversely, a hot market may inflate valuations to sometimes bloated levels during rounds. Understanding these gyrations is key for investors and also for companies in the fundraising process.