It might feel positively retro to apply discounted-cash-flow valuation to hot start-ups and the like. But it’s still the most reliable method. In the search for precise valuations critical to investors, we find that some well-established principles work just fine, even for high-growth companies like tech start-ups. Discounted-cash flow valuation, though it may sound stodgily old school, works where other methods fail, since the core principles of economics and finance apply even in uncharted territories, such as startups.The truth is that alternatives, such as price to-earnings or value-to-sales multiples, are of little use when earnings are negative and when there aren’t good benchmarks for sales multiples.More important, these shorthand methods can’t account for the unique characteristics of each company in a fast-changing environment, and they provide little insight into what drives valuation.

http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/mckinsey-on-finance/mckinsey-on-finance-number-57/valuing-high-tech-companies