Startup Valuations: Valuation Method

These are some of the approaches that is applied to Stratton x Venture when evaluating a startup. There is multiple approach some may vary depending on the approach and the segment of the market.

1. Startup Valuations: Discounted Cash Flow Method

is based on an analysis of the amount of money the startup is likely to generate in the future (expected future cash flows) using a discount rate. The DCF valuation method is considered as important as the industry standard valuation of a startup. Some startups prefer to use the DCF method rather than the market comparable method because the valuation is not influenced by market trends and size as it is based solely on financial data

$$DCF=((1+r)1)/CF1 +((1+r)2)/CF2 +((1+r)n)/CFn$$

CF1​=The cash flow for year one

CF2​=The cash flow for year two

CFn​=The cash flow for additional years

r=The discount rate​

2. Startup Valuations: Venture Capital Method

Whereby, an anticipate set of valuation is placed on the current state and projection on the ROI thus acquiring a post money valuation. Then the per money valuation is determined and adjusted accordingly for dilution

$$PMV= EV/ROI$$

PMV = Post money valuation

EV = Exit Value

ROI = Return of Investment

$$RMV=PMV-I$$

MV = Post money valuation

RMV= Pre Money Valuation

I = Investment

3. Startup Valuations: Scorecard Method

The preference of many angel investors for startups before income. The method is somewhat similar to the RFS method in that it follows a comparable value of a typical startup funded in the same market and stage and adjusts it accordingly.

4. Startup Valuations: Dave Berkus Valuation Method

An early valuation method explicitly designed to provide a starting point without relying on the founder's financial projections. The Berkus Method examines five critical areas of a startup and assigns each area a value ranging from zero to $500,000.

§ Sound Idea: Eg: $0 – $500,000: The company has an exciting business idea.

§ Quality Management Team: Eg: $500,000 – $1,000,000: The company has assembled an excellent management team.

§ Prototype: Eg: $1,000,000 – $1,500,000: The company has a solid product or prototype that attracts customers.

§ Strategic Relationships: Eg: $1,500,000 – $2,000,000: The company has powerful strategic alliances, partners, or a burgeoning customer base.

§ Product Rollout or Sales: For eg: $2,000,000 – $2,500,000: The company has signs of revenue growth and a pathway to profitability