Critical Factors in Comparable Companies Analysis for Pre-Revenue Firms

In the realm of alternative investments, specifically within the valuation techniques employed for private equity, investors often face challenges in estimating the fair value of their investments. One prominent method used in this context is the Comparable Companies Analysis (CCA), which relies heavily on the selection of appropriate peer companies for valuation.

Consider the following scenario: An investor is analyzing a private technology firm that is pre-revenue and has significant growth potential. The investor contemplates using the CCA method, considering several other technology firms in the same sector as benchmarks. However, this approach requires careful consideration of the selected comparables.

Which factor is most critical when selecting comparable companies for the valuation of this pre-revenue technology firm using the Comparable Companies Analysis method?