Coming up with a sensible valuation

Valuation. Pre-Money Valuation. Post-Money Valuation. It is the bane of every founder.

How should you value your startup?

There are many different ways to value a company. Early-stage startups by nature have negative cash flow and no historical financial data, making valuation a challenge.

Showing traction is key to a higher valuation.

Having a prototype, revenues, database of customers, a waiting list of customers, signed contracts with partners/customers, intellectual property, positive business reputation, and barriers to entry are all evidence of traction that investors want to see.

But, believe it or not, industry buzz and excitement about your company can affect your valuation.

If there are numerous investors interested, you may have a higher valuation. Investors may be willing to take less ownership for their investment.

In the next few posts, we will cover how to use the eight most used valuation methods, starting with the ones that are best for pre-revenue, early-stage startups, valuation methods best for later-stage startups, and the valuation method VC firms use to compare investment options.

✅ Simple Comparables Method

✅ Scorecard Valuation Method

✅ Risk Factor Summation Method

✅ Berkus Method

✅ Earnings Multiples Method

✅ Discounted Cashflow (DCF) Method

✅ Book Value Method

✅ Venture Capital Method

None of the valuation methods is an exact science, but you will get an idea of your startup’s value.

However, at the end of the day, the valuation is subject to negotiation. It is how much ownership of your company the investor is willing to take for their investment.