[throwayit]

The value of a company is not equal to it's revenue - that doesn't make sense. To give an example, let's say someone offered to sell you a magic bean which caused $10 to appear magically every year. Would the bean grower sell it to you for $10? Probably not unless they needed cash immediately, since they could make $50 from the bean in 5 years.

Instead value of a company is the perpetual value of the cash flows to the buyer. The problem is for startups we have very little idea what their cash flows will be in the future. Their revenues could be anywhere, we have no idea what their costs will be (how many sales people do you need, how much R&D, etc.), etc. So because of that valuation becomes a very imprecise art.

Outside of the cash flow approach, another approach for valuing a company is to consider future buyers. Suppose you have a magic bean that returns 50 cents each year in perpetuity. However, the magic bean is called MagicBeanAI and since AI is hot you know you can sell that bean for $50 to someone else. In this case you would be willing to buy it for <$50 regardless of MagicBeanAI's cash flows. This is what happens when markets start to behave irrationally. Eventually people realize they don't have any more suckers to sell to and their MagicBeanAIs value goes to almost nothing. This is essentially a market crashl; google "tulip mania" for more examples.