How Startup Valuation Works –A Way To Measure a Company’s Potential

HOW STARTUP VALUATION WORKS A WAY TO MEASURE A COMPANY'S POTENTIAL BY ANNA VITAL AT THE EARLY STAGES VALUATION DOES NOT SHOW early stage THE TRUE VALUE OF THE COMPANY. IT SHOWS HOW MUCH OF THE COMPANY INVESTOR GETS FOR HIS INVESTMENT. value traction prior success team product founders with success in the past tend to get higher valuations $2.6 million valuation VALUATION DEPENDS $1.5 million ON HOW MUCH MONEY YOU NEED You need enough money to run 3 experiments and have at least 6 months of runway. Investors want to see growth within 18 months. $1 million $640K $400K $300K $100K $20K 18 months investment (average, 2012) 20% 16% 5% dilution micro-VC super angel angel incubator VALUATION DEPENDS ON WHO YOU TAKE MONEY FROM scaling stage growth Investors find similar companies How To Calculate Valuation and figure out their valuation to revenue ratio - the "multiple." Then they multiply your company's revenue by that multiple. find O similar companies similar companies your company Enterprise value = multiple earnings or users how many times their valuation is bigger than revenue? calculate revenue : valuation - your revenue : X the multiple бx? valuation multiply your revenue by the multiple take revenues this month, year, and next year calculate best case, triangulate the 3 cases money invested worst case and base case $8M (2012 average) $2.9M project when the startup will exit discount option pool can substantially decrease valuation earnings by the time value of money valuation exit revenue stage How is the company doing? ACQUI-HIRE ACQUISITION the team is going strong, but the product is not taking off the product has traction, but the company does not generate enough revenue to qualify for an IPO PRODUCT TEAM big company IPO TEAM big company = $1,000,000 HOW TO VALUE? $11M PROFIT $100 M REVENUE team COMPARABLES member any valuation $500M valuation compare to similar companies REPLACEMENT COST DISCOUNTED CASH FLOW 10 years rebuilding from scratch money in the future is worth less investment bankers PRESENT PROMISE REVENUE OF GROWTH project company growth to determine valuation before the IPO III realists believers Sources: Determining Valuation Multiples, AVC http://bit.ly/q5yiFg The NASDAQ and NYSE listing requirements http://bit.ly/TomC9j http://bit.ly/A6z7Uv Halo Report http://www.angelresourceinstitute.org/halo-report/ FO1 FundersandFounders.com