How to value a Technology Company?

There's no single formula that can be used to absolutely value the business. There are, however, a number of tried and trusted techniques that can be used to decide the indicative value for the business.  The seller will want to drive the price up and potential buyers will need to drive the price down, so the final value will be down to negotiation between both parties.

It's highly dependent on the sector... internet companies are valued completely differently from semiconductor companies, for example. But generally revenue multiples, EBITDA multiples and Free Cash Flow multiples are used, much like anything else. P/E can be a bit less relevant but it really depends on the specific company.

For early stage startups, revenue synergies with a potential acquirer are very important and can be the principal value driver. If they think they can sell a lot of the product, higher value results.

As mentioned above, for Internet companies, registered users, pageviews, conversions, etc. can all be used for valuation.

For subscription companies, Free Cash Flow is often a more relevant metric than EBITDA because cash that is collected upfront but not recorded as revenue will flow through to FCF but not EBITDA. Bookings can also be used in place of revenue.

For hardware companies, gross margin is very important and gross profit multiples can even be used because it's very easy to lose money when your COGS is really high.

Finally, you said "most technology companies have negative earnings..." This is not really the case anymore as the technology has matured significantly. There are numerous buyout shops that acquire profitable, cash-flow positive tech companies and will continue to do so (Silver Lake, Francisco Partners, etc.).

Many people don't realize the extent to which the tech industry has matured. Sure, some sectors such as Internet will have more startups and unprofitable companies, but in general profitable tech companies are valued much like companies in any other industry: pub comps, M&A comps, DCFs, LBO models.

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