Each agreed with Hooke that there is no universal science to valuation, although there is plenty of math involved in the two main systems for assessing valuation: the Discounted Cash Flow (DCF) method taught in business schools, and the Relative Value method which calculates value by comparing similar companies, much as one determines the price of a home by looking at recent sales in the neighborhood. The latter tends to be the one used most often in the Internet space, so full of young companies and business models.

Hooke calls the valuation process, "a methodology for developing a rational justification for why you should make a purchase or sale of a stock or a company." Sounds simple, and yet, if it's not a science, is it an art? Few would call the process pretty, and, while it seems to involve a fair dash of sorcery, there should be reason behind it. While Frederick agrees that you can't rely on hard rules, nonetheless, "If you were to put the four of us who comprise FBR Technology Venture Partners in separate rooms and just slid business plans under each door, telling us to put them in [value] buckets without any communication between us, I bet you that we would have almost 100% unanimity."

The "buckets" he talked about are threshold levels for venture funding linked by rules of thumb to various stages of a company's development. Other VCs may differ, but Frederick's buckets are $2-$5 million pre-money, $5-$10 million, $10-20 million, $20-$50 million and $50+ million. 'Two people with an idea,' for example, fall into the first bucket.

"Is there any rhyme or reason to those categories?" Frederick asked, then answered himself, "I don't know. It's kind of what I developed over time." For VCs, who are usually looking for 10-times return on investment, it's mostly a factor of magnitude, timing and risk of future earnings, with the emphasis on the risk.

The good news is, if you play your cards right, you can move up into the bigger buckets. Angie Kim and EqualFooting.com did so, in part by leveraging competition between VCs. She offered practical tips to help other netpreneurs improve their results. Regarding Frederick's buckets for example, Kim observed that, "A company's value seems to be pegged at the time when you do your first meeting with that particular VC." Time passed and milestones were made between that first meeting and closing the deal, but the VC's valuations didn't. Kim's advice, as long as you are comfortable that you can stay afloat financially, is to, "try delaying the meetings until you have gotten over a significant bump in the company's history, whether it's hiring a first employee outside the founding group, having a prototype or signing the first major marketing agreement."

Internet company valuations are also complicated by the fact that they are...well...Internet companies, and that can mean so many different things. Back when the telephone was invented, Frederick noted, if a stock broker used a telephone they didn't suddenly become a telephone company. Online brokers, on the other hand, are considered a new kind of beast. Though they have certainly changed the industry, they still make money by getting people to make transactions through their service, just like traditional stock brokers.

For all the rip-roaring, razzle-dazzle of the Internet space, there have actually been climates like this before in industries like cable and biotechnology. Frederick pointed out, "There were biotech companies whose stocks fell when the FDA announced approval of their products. One great Wall Street analyst said he was mortified because he could no longer garner a biotech multiple; it was now a real drug company."

So what's the verdict? Science, art or sorcery? None of the above. Just a fact of entrepreneurial life, like the law of supply and demand. In fact, according to Frederick, "Ultimately valuation is determined by supply and demand. In the end, if you have something that's red hot, I don't care what bucket I think it belongs in, if you absolutely sell us on the idea and we want to make sure that we are a part of it, we'll try to work with you to make a valuation work."