METHODS

Methods Abbreviation

Discounted Cash Flow Method DCF

Valuation by Multiple VM

Comparable Companies Method CT

Replacement Cost Method RC

Net Book Value Method NBV

Berkus Vale Method BM

Venture capital Method VC

DCF

When to use this method

The Discounted Cash Flow (DCF) method can be used in startup valuation when there are re
projections available for the startup. DCF is a popular valuation approach that estimates the
on its expected future cash flows. While DCF is often used for more established businesses
can also be applicable to startups under certain circumstances:

Post-Revenue Startups

Startups that have already generated revenue and have a clear path to profitability can ben
reasonable projections of future cash flows, DCF can help estimate the present value of the

Predictable and Steady Cash Flows

If the startup's business model is relatively stable, and there is a high degree of confidence
projections, DCF can be used effectively. This is more likely to apply to startups in traditiona
streams.

Mature Startups

Some startups might have been operating for several years and have a more predictable ca
could be a viable valuation method.

Tech Companies with Subscription Models

Tech startups with subscription-based revenue models may have relatively predictable and
a strong customer base and low churn rate, DCF might be suitable.

Late-Stage Startups

Startups that have progressed beyond the early-stage and have substantial financial data a
candidates for DCF analysis.

Venture Capital or Private Equity Investor Preference

In some cases, venture capital or private equity investors may prefer using DCF for valuatio
more in-depth analysis of the startup's financial prospects and potential return on investme
 p valuation when there are reasonable and reliable cash flow
n approach that estimates the present value of a company based
more established businesses with a track record of cash flows, it
:

r path to profitability can benefit from the DCF method. If there are
mate the present value of these cash flows.

a high degree of confidence in the accuracy of cash flow

apply to startups in traditional industries with established revenue

d have a more predictable cash flow history. In such cases, DCF

ve relatively predictable and recurring cash flows. If the startup has

able.

e substantial financial data and revenue traction may be suitable

prefer using DCF for valuation, especially if they are looking for a
potential return on investment.
DCF - WEIGHTED AVERAGE COST OF CAPITAL (WACC)

WACC calculation notes Damodaran

Risk-free rate 2.0%

Equity risk premium 4.72%
Unlevered industry Beta 0.81
Gearing (ND / E) 56.4%
Relevered industry beta 1.15
Sub-total 7.4%

Size premium 0.5%

Country risk premium 0.5%
Specific risk premium 0.7%

Cost of equity 9.1%

Industry - Damodaran database 3.6%

Cost of debt 3.6%

Corporate tax rate 25.5%

Cost of Debt after tax 2.7%

Gearing (ND / EV) 36.0%

WACC 6.8%

Inflation - Local 3.5%

WACC (adjusted) 10.5%

2
Reference

3 Month T bill in USA

ERP for USA
Unlevered beta for industry
D/E for industry

Cost of debt for Industry

Official CIT rate (state + federal)

Official inflation at valuation date from Central bank

DCF

Fill blue cells only

Assumptions

Discount rate - WACC 10.5%

Sales YoY growth rate 7.0%
EBIT YoY growth rate 7.0%
Long term CF growth rate 1.5%
Corporate income tax rate 15.0%
Capital investment % of EBIT 15.0%
Annual sales (current year) 10,000

Current
Discounted Cash Flows year notes 2024
$

Sales 10,000 10,700

EBIT / Operating profit 2,000 2,140

Account receivable 1,700 17% 1,819

Inventories 1,000 10% 1,070
Account payables 1,300 13% 1,391

NWC projection 1,400 1,498

Corporate income tax (321)

Depreciation and other non-cash expenses 100
Net Working capital adjustments (98)
CAPEX adjustments (150) (321)
Free Cash Flow 7,250 1,500

Discount factor 1.0000 1.1052

DCF 7,250 1,357

Valuatio
Valuation notes n date

Cumulated DCF 6,316

Terminal Value 13,197

Discounted Terminal Value 8,002

DCF value of operations 14,318

Excess cash and marketable securities 1,600

Excess real estate 25
Investments in nonconsolidated companies 12
Tax loss carryforwards 12
Discontinued operations 40
Non-operating assets adjustments 1,689

Enterprise value 16,007

Financial liabilities (450)

Interest bearing debt (450)

Long-term operating provisions (50)

Nonoperating provisions (75)
Contingent liabilities (40)
Debt equivalents (165)

Convertible debt (25)

Employee stock options (50)
Noncontrolling
Hybrid interests
claims and non controlling interests (150)
(225)

Equity value 15,167

2
 2025 2026 2027 2028

11,449 12,250 13,108 14,026

2,290 2,450 2,622 2,805

1,946 2,083 2,228 2,384

1,145 1,225 1,311 1,403
1,488 1,593 1,704 1,823

1,603 1,715 1,835 1,964

(343) (368) (393) (421)

100 100 100 100
(105) (112) (120) (128)
(343) (368) (393) (421)
1,598 1,703 1,815 1,935

1.2216 1.3501 1.4922 1.6493

1,308 1,261 1,216 1,173

This is amount of cash position from the balance sheet

This is amount of total financial debt from the balance sheet

VALUATION BY MULTIPLE

When to use this method

In startup valuation, both the EBITDA multiple method and the market multiple method are not typica
are often pre-revenue or have limited financial data, making traditional profitability-based metrics like
valuation tends to focus on methods that consider the startup's potential for future growth and profita
where startups have achieved a certain level of maturity and financial stability, these methods might b

Late-Stage Startups

Startups that have progressed beyond the early-stage and have achieved significant revenue and positi
EBITDA multiple analysis. However, it is still relatively rare for startups to have sufficient EBITDA to sup

Profitable Startups
Some startups may achieve profitability relatively early in their lifecycle. If a startup has a solid track re
EBITDA multiple method could be considered as a supplementary valuation approach.

Comparable Analysis

The market multiple method, which involves comparing the startup to similar companies in the marke
undergone funding rounds, can be relevant in some cases. This approach may be used to gauge how th
peers in the industry.

Late-Stage Funding Round

In later-stage funding rounds, investors may use market multiples derived from comparable companies
Exit Planning

For startups that are approaching an exit, such as an acquisition or IPO, market multiples of similar com
in the negotiation process.
 ltiple method are not typically the primary approaches used. Startups
ofitability-based metrics like EBITDA less applicable. Instead, startup
for future growth and profitability. However, in certain situations
ility, these methods might be considered:

ignificant revenue and positive EBITDA might be more suitable for

ave sufficient EBITDA to support this method.

a startup has a solid track record of generating positive EBITDA, the

n approach.

ilar companies in the market that have already been valued or have
may be used to gauge how the startup's valuation compares to its

from comparable companies to negotiate a startup's valuation.

arket multiples of similar companies can be used as reference points

VALUATION BY MULTIPLE

EBITDA Multiple assumptions

Low 6.00
Medium 8.00
High 10.00

Valuation by EBITDA multiple notes Medium Low High

$

EBITDA non-adjusted 2,000 2,000 2,000

Non operating items 75 75 75

One-time items 20 20 20
Asset impairments (reversal) 15 15 15
Write-offs 5 5 5
Excess owner compensation 25 25 25
Share based compensation 5 5 5
GAAP adjustments (30) (30) (30)
IC fair prices adjustment 25 25 25
Adjustments 140 140 140

EBITDA adjusted 2,140 2,140 2,140

Multiple 8.00 6.00 10.00
Valuation 17,120 12,840 21,400

Cash on hand 1,600 1,600 1,600

Interest bearing debt 450 450 450
Net financial position 1,150 1,150 1,150

Valuation adjusted 18,270 13,990 22,550

REVENUE Multiple assumptions

Low 2.00
Medium 3.00
High 4.00

Valuation by EBITDA multiple notes Medium

0

REVENUE non-adjusted 6,250

Non operating items 75

One-time items 20
GAAP adjustments (30)
IC fair prices adjustment 25
Adjustments 90

REVENUE adjusted 6,340

Multiple 3.00
Valuation 19,020
 Low High

6,250 6,250

75 75
20 20
(30) (30)
25 25
90 90

6,340 6,340
2.00 4.00
12,680 25,360
COMPARABLE COMPANIES METHOD

When to use this method

The Comparable Companies Method, also known as the Market Comparable M
be used in startup valuation when there are comparable publicly-traded comp
the same industry or sector. This approach is commonly used in later-stage sta
level of maturity and have comparable companies with relevant financial data
some situations when the Comparable Companies Method is used in startup v

Late-Stage Startups

Startups that have progressed beyond the early-stage and have achieved a re
user base might be suitable candidates for the Comparable Companies Metho
startups that have reached a stage where they can be compared to establishe

Sector or Industry Benchmarking

The Comparable Companies Method is useful when there are well-established

industry with publicly available financial data and valuations. These comparab
benchmarks for valuing the startup.

Funding Rounds and Investments

In later-stage funding rounds or when seeking investment from venture capita

Comparable Companies Method may be used to justify the startup's valuation
of similar startups or companies in the same space to assess the reasonablen

Exit Planning

When a startup is considering an exit, such as an acquisition or an initial publi

Companies Method can help in determining an appropriate valuation range ba
companies that have recently undergone similar transactions.

IPO Valuation

In the case of a startup preparing for an IPO, investment banks and underwrite
Companies Method to estimate the potential valuation range for the IPO.

Lack of Historical Financial Data

Startups often have limited financial data, especially in the early stages. The C
be used when historical financial data is not sufficient for other valuation appr
Startups often have limited financial data, especially in the early stages. The C
be used when historical financial data is not sufficient for other valuation appr
 Market Comparable Method or Market Multiple Method, can
e publicly-traded companies or recently funded startups in
y used in later-stage startups that have achieved a certain
relevant financial data and valuations available. Here are
hod is used in startup valuation

and have achieved a reasonable level of traction, revenue, or

able Companies Method. This method is more relevant for
compared to established companies in the same industry.

re are well-established companies in the same sector or

ations. These comparable companies can serve as

ent from venture capital or private equity firms, the

the startup's valuation. Investors may look at the valuations
ssess the reasonableness of the proposed valuation.

sition or an initial public offering (IPO), the Comparable

iate valuation range based on the valuations of comparable
ctions.

nt banks and underwriters might use the Comparable

range for the IPO.

the early stages. The Comparable Companies Method can

or other valuation approaches.
 the early stages. The Comparable Companies Method can
or other valuation approaches.
COMPARABLE COMPANY VALUATION
amount in millions
Market Data Financials

Share Equity Net Enterpri

Company Price Value Debt se Value Revenue EBITDA
Company ACC LTD 520.0 3,200.0 150.0 3,350.0 8,000.0 500.0
Company A 2,540.0 4,200.0 250.0 4,450.0 7,870.0 2,607.9
Company B 750.0 4,250.0 350.0 4,600.0 773.2 1,954.0
Company C 600.0 3,150.0 50.0 3,200.0 283.3 752.7
Company D 350.0 3,180.0 60.0 3,240.0 242.4 712.0
Company E 1,500.0 2,800.0 15.0 2,815.0 4,233.7 924.2
Company F 1,200.0 3,000.0 15.0 3,015.0 952.1 516.9
Company G 352.0 2,250.0 160.0 2,410.0 455.8 223.2
Company H 285.0 2,365.0 50.0 2,415.0 2,208.8 342.0
Company I 1,650.0 2,185.0 800.0 2,985.0 1,845.6 578.1

High
Upper Quartile
Average
Median
Lower Quartile
Low

X COMPANY LTD Comparable Valuation

Revenue, EBITDA, P/E

Implied Enterprise Value
Net Debt
Equity valuation
inancials Valuation

Net EV/
Income Revenue EV/EBITDA P/E
200.0 0.4 6.7 16.0
111.6 0.6 1.7 37.6
72.6 5.9 2.4 58.5
80.7 11.3 4.3 39.0
20.1 13.4 4.6 158.2
70.5 0.7 3.0 39.7
96.0 3.2 5.8 31.3
112.0 5.3 10.8 20.1
92.8 1.1 7.1 25.5
91.4 1.6 5.2 23.9

13.4 10.8 158.2

5.9 6.7 39.7
4.3 5.1 45.0
2.4 4.9 34.4
0.7 3.0 23.9
0.4 1.7 16.0

EV/ RevenueEV/EBITDA P/E

5,250.00 1,200.00 500.00

12,558.1 5,828.4 17,221.1
150.0 150.0 150.0
12,408.1 5,678.4 17,071.1
REPLACEMENT COST METHOD

When to use this method

Replacement cost method or the cost to duplicate method are generally not the primary approaches

However, if for some specific reason the replacement cost method or the cost to duplicate method w
valuation, it could be in situations where the startup's business model is heavily reliant on tangible a
characteristics. These methods may be relevant in the following circumstances:

Not possible to reliable predict revenues

Many other methods comes for startup future earning expectaton. If it is hard to predcit expectatoin
revenues in next one, two or three years than this method can be appled. Also, if the value resulted f
than value from other methods, this method should prevail.

Pre-revenue stage

This case is connected with previous one. This is case that the startup even does not start to generat
revenue prediction is not probable.

Tangible Asset-Intensive Startups

If the startup's primary value comes from tangible assets and infrastructure (e.g., manufacturing com
specialized equipment), the replacement cost or cost to duplicate method might provide some insigh
assets.

Physical Product Development

Startups involved in the development of unique physical products with significant manufacturing and
find these methods helpful in estimating the cost of reproducing the product.
 the primary approaches used in valuation.

st to duplicate method were considered in startup

avily reliant on tangible assets with specific
ces:

rd to predcit expectatoin or not realiable to forecast

lso, if the value resulted from this method is higher

does not start to generate a revenue, and the

(e.g., manufacturing companies or businesses with

might provide some insights into the value of these

ficant manufacturing and production costs might

t.
REPLACEMENT COST METHOD

Performer Q2 21 Q3 21
Product development
Backend Name Surname 250
Frontend Name Surname 180 180
DevOps Name Surname
Security Name Surname 150
Security Supplier
UI / UX design Agency
UI / UX design Freelance agency
UI / UX design Freelance agency
UI / UX design Freelance agency 160 160
UI / UX design Freelance agency
Supervision Name Surname
App Name Surname
Payment integrations Name Surname
- - 340 740

Web Site Development

UI / UX design Name Surname 10
UI / UX design Supplier
UI / UX design Agency
Graphic Design Freelance agency 20
Wireframe Freelance agency 20 20
Dev Name Surname 520 520
SEO Name Surname
Content Name Surname 462 462
Content Name Surname
Content Name Surname
Content Name Surname
### ###

Legal - Admin-Management
Legal external Name Surname 10
Genear and HR Name Surname 50 50
ToC Name Surname
Privacy policy Name Surname 20
IC agreements Name Surname 20
Special agreements Name Surname
Labor agreements Name Surname
Legal Name Surname

Total

Margin
Final Valuation

Final Valuation in $ thousands

Q4 21 Q1 22 Q2 22 Q3 22 Q4 22 Q1 23 Q2 23 Q3 23 Q4 23 Q3 24 Q4 24 Total hours

60 528 528 528 528 528 528 528 528 528 528 5590
180 180 180 180 180 180 180 180 180 180 180 2340
0
150 150 150 150 150 150 150 150 150 150 150 1800
10 10 20 40
20 30 30 80
5 5
10 10
160 160 160 160 160 160 35 1315
10 45 55
9 9 9 9 9 45
40 120 120 120 120 520
30 30 60
560 ### ### ### ### ### 967 978 978 ### 978 11,860

150 160
30 100 30 160
40 40
20
20 20 20 20 20 20 20 20 20 220
520 520 520 520 520 520 520 520 520 520 520 6760
30 50 50 130
462 462 462 462 462 462 462 462 462 462 462 6006
0
396 396 396 396 396 396 2376
30 3 3 36
### ### ### ### ### ### ### ### ### 982 ### 15,908

30 30 30 30 130
50 50 50 50 50 50 50 50 50 50 50 650
40 40
30 88 138
15 35
462 462 462 462 1848
0
40 20 15 75
2,916

30,684
Hourly rate Total investment

90 503,100
55 128,700
55 -
70 126,000
70 2,800
70 5,600
70 350
70 700
70 92,050
70 3,850
55 2,475
55 28,600
55 3,300
897,525

30 4,800
50 8,000
35 1,400
30 600
70 15,400
150 1,014,000
30 3,900
75 450,450
-
30 71,280
300 10,800
1,580,630

120 15,600
70 45,500
35 1,400
30 4,140
70 2,450
20 36,960
-
70 5,250
111,300

2,589,455

12% 310,735
2,900,190

2,900
NET BOOK VALUATION METHOD

When to use this method

The Net Book Value (NBV) method is not commonly used in startup valuation. The Net Book Value
historical cost (or acquisition cost) and its accumulated depreciation. It is a metric used in accounti
the company's balance sheet.
The Net Book Value method is more relevant in the context of accounting and financial reporting,
assets and determining their value after considering depreciation over time. However, when it com
limited applicability for several reasons:

Startups Focus on Future Potential

Startup valuation is typically forward-looking, emphasizing the potential for future growth and pro
backward-looking and based on historical costs and depreciation, which may not accurately reflect

Intangible Assets

Startups often have significant intangible assets such as intellectual property, brand value, and tech
by the Net Book Value method. These intangibles play a crucial role in the startup's value but are n
historical cost and depreciation.

Depreciation Not Always Applicable

Startups frequently invest in assets with a long useful life, such as software or technology infrastru
a significant factor, rendering the Net Book Value less informative for valuation.

Early-Stage Startups

Many startups are in their early stages and may not have significant tangible assets recorded on th
Value method irrelevant for their valuation.
Market-Driven Valuation

Startup valuation often relies on market-driven methods such as the Discounted Cash Flow (DCF) m
Capital Method, which consider the startup's potential for revenue growth, market share, and scal
luation. The Net Book Value of an asset is the difference between its
t is a metric used in accounting to represent the asset's current value on

ting and financial reporting, where it helps in tracking the historical cost of
time. However, when it comes to startup valuation, this method has

al for future growth and profitability. The Net Book Value method is
ch may not accurately reflect the startup's potential value.

operty, brand value, and technology, which are not adequately captured
the startup's value but are not represented in the balance sheet based on

ware or technology infrastructure. In such cases, depreciation may not be

valuation.

ngible assets recorded on their balance sheets, making the Net Book

iscounted Cash Flow (DCF) method, market comparables, or the Venture

owth, market share, and scalability.
NET BOOK VALUATION METHOD

Fair market
value
Balance sheet notes At Valuation date Adjustments
$

Intangible assets 750

Tangible assets 1,250 250
Investments 50 215
Other fixed assets 150
Fixed assets 2,200 465

Inventories 200
Account Receivable 850 (200)
Cash 55 150
Short term investments 120
Other short term assets 170
Current assets 1,395 (50)

Total assets 3,595 415

Shareholders equity 50
Retained earnings (loss) 2,330 315
Equity 2,380 315

Long term liabilities 500

Trade payables 250 100

Financial liabilities 340
Other liabilities 125
Current liabilities 715 100

Total Equity and liabilities 3,595 415

Check 0 0

Valuation

Equity value after FMV adjustments 2,695

Adjusted

750
1,500
265
150
2,665

200
650
205
120
170
1,345

4,010

50
2,645
2,695

500

350
340
125
815

4,010

0
BERKUS METHOD

When to use this method

The Berkus Method is a rule-of-thumb valuation approach for early-stage startu
angel investor and venture capitalist. The method simplifies the valuation of pr
range of dollar values to various qualitative risk factors. The method recognizes
metrics might not be applicable to startups that may not yet have revenues or

How the Berkus Method Works:

Sound Idea (Basic Value): If there's a sound business idea, assign a base value.

Prototype (Reducing Technology Risk): If there's a prototype that works, add an

Quality Management Team (Reducing Execution Risk): If there's a quality mana

value.

Strategic Relationships (Reducing Market Risk): If the company has established

add another value.

Product Rollout or Sales (Reducing Production Risk): If the company has a produ
value.

For each of the criteria the startup meets, a predetermined value (which can va
investor's beliefs) is added to the startup's valuation. The total gives a rough es

When Should the Berkus Method Be Used?

The Berkus Method is best suited for:

Early-stage startups: Especially those in the pre-revenue phase where tradition

Startups in industries where comparable valuations are hard to find: In such ca
a better indication of the startup's potential value.

Situations where a quick, rule-of-thumb valuation is needed: Such as initial con

potential investors.
However, like all rule-of-thumb methods, the Berkus Method has its limitations.
values assigned to each criteria can vary widely. For detailed negotiations or as
sophisticated valuation methods may be preferred.
h for early-stage startups, developed by Dave Berkus, an
fies the valuation of pre-revenue startups by assigning a
The method recognizes that traditional financial valuation
t yet have revenues or earnings.

a, assign a base value.

ype that works, add another value.

there's a quality management team in place, add another

mpany has established strategic relationships or customers,

e company has a product rollout or sales, add another

ed value (which can vary based on the specific industry or

e total gives a rough estimate of the startup's value.

phase where traditional financial metrics might not apply.

hard to find: In such cases, qualitative factors might provide

ded: Such as initial conversations between founders and

hod has its limitations. It's a subjective approach and the

ailed negotiations or as startups mature, more
BERKUS METHOD

Characteristics

Sound Idea (Basic Value)

Prototype (Reducing Technology Risk)
Quality Management Team (Reducing Execution Risk)
Strategic Relationships (Reducing Market Risk)
Product Rollout or Sales (Reducing Production Risk)
Valuation

Sound Idea (Basic Value)

Idea addresses
The problem a clear andenough
is significant identifiable problemare
that people or willing
need intothe
paymarket
for a
solution
Implementation stage risks (financial, technical)
Scalabiliy of idea
How does barriers
Are there the product or service
to entry differentiate
that can from existing
prevent competitors solutions?
from easily
copying the idea?
Is there a clear revenue model associated with the idea?
Can this idea achieve profitability within a reasonable timeframe?
Does the idea face significant regulatory and legal hurdles?
Placeholder
Placeholder
Placeholder

Prototype (Reducing Technology Risk)

Demonstration of feasibility
Suitable for early market testing, gaining valuable feedback
While the prototype might work on a small scale, can the technology
or product be scaled up to meet potential market demands
Is the the
Does prototype user-friendly?
prototype operate reliably, or does it crash or fail under
certain conditions?
Ability for integrations with other systemts
Can the prototype be reproduced efficiently, especially in mass
quantities, without significant changes to the design or functionality
Has the startup used the prototype to gather feedback
Has the startup used the prototype to gather feedback
IP protections risks
Placeholder
Placeholder

Quality Management Team (Reducing Execution Risk)

Deep understanding of the industry, product, and market dynamics
The ability to set and drive towards a long-term vision
Skills in managing day-to-day operations efficiently
The capacity to inspire, motivate, and lead the team
Effective and timely decision-making abilities
flexible and adaptive to changes
understanding of the financial aspects, including budgeting, forecasting
Clear communication skills
Understanding of sales funnel of procutcs
Understanding of makrting channels
Risk that management leave the startup
Placeholder
Placeholder
Placeholder

Strategic Relationships (Reducing Market Risk)

Relations with industry experts
Relations with potential affiliates
Relations with suppliers
Relations with distributors
Relations with finance institutions
Placeholder
Placeholder
Placeholder

Product Rollout or Sales (Reducing Production Risk)

Pilot or beta version before a full-scale launch
Proof of Concept
Evidence that there's a demand for the product
Feedback reviews
Customer behavior in beta
Operational systems in place
Customer acquisition costs
Sales channels
Other marketing and R&D costs
Total addressable market volume
Total addressable market growth
Placeholder
 Adjusted for
risks and
Adding value (max) opportunities Valuation

500,000 64% 320,833

500,000 62% 309,091
500,000 72% 361,538
500,000 59% 293,750
500,000 63% 312,500
2,500,000 1,597,713

Score (1-10) Weight

6.42
8
4
8
9
5
7
4
9
2
7
7
7

6.18
8
7

8
5
5
7

8
8
8
2
 2

7.23
8
7
8
5
5
7
8
8
8
8
5
8
9

5.88
10
5
2
9
5
7
8
1

6.25
5
2
4
5
10
10
8
9
7
5
5
5
VENTURE CAPITAL METHOD

When to use this method

Starts by estimating the startup's exit value in the future (e.g., through an IPO
The VC then determines the desired return on investment (ROI). For instance, if
and estimates the exit value at $100 million, they would value the startup at $1
This method often uses a combination of multiples and discount rates to arrive

The Venture Capital Method (VCM) for startup valuation is typically us

Early-stage startups:

This method is most applicable for startups that do not have a long history of e
young companies, traditional valuation methods like the Discounted Cash Flow
to the high uncertainty of future cash flows.

Absence of Comparable Transactions:

In cases where there aren't sufficient comparable company transactions or trad

VCs might rely on the VCM to derive a valuation.

High-growth potential:

The VCM is often employed for startups with the potential for significant growth
either through an IPO (Initial Public Offering) or a strategic acquisition.

When the exit strategy is clear:

VCM is especially relevant when there is a clear exit horizon in sight, such as a
defined period (e.g., 5-7 years).

Simplicity:

When VCs need a straightforward method to get a ballpark figure for a startup'
complex financial models.

Negotiation Tool:

The VCM can be a tool for VCs to set the terms of the deal, especially regarding
wish to obtain in exchange for their investment. By setting a desired return on
a valuation number that aligns with their target ownership stake.

====

This method gives a simplistic view and doesn't account for many complexities
rounds, market changes, or varying growth trajectories. It's essential to use it a
on other qualitative and quantitative factors.
====

This method gives a simplistic view and doesn't account for many complexities
rounds, market changes, or varying growth trajectories. It's essential to use it a
on other qualitative and quantitative factors.
e (e.g., through an IPO or acquisition).
nt (ROI). For instance, if a VC wants a 10x return in 5 years
value the startup at $10 million today.
discount rates to arrive at present valuations.

uation is typically used in the following situations:

have a long history of earnings or cash flows. For very

Discounted Cash Flow (DCF) might not be as effective due

any transactions or trading multiples to benchmark against,

al for significant growth and a subsequent high-value exit,

ic acquisition.

zon in sight, such as a projected acquisition or IPO within a

ark figure for a startup's valuation without diving deep into

al, especially regarding the ownership percentage they

ng a desired return on investment (ROI), they can back into
ip stake.

for many complexities, such as dilution from future funding

It's essential to use it as a starting point and adjust based
 for many complexities, such as dilution from future funding
It's essential to use it as a starting point and adjust based
VENTURE CAPITAL METHOD

Parameter Value Explanation

Projected Year 5 Revenue ### $50 million

Price-to-sales ratio 5 5x

Estimated Future Exit Value (Year

### $250 million (5 x $50M)
5)

VC's Desired ROI 10% 10x

Post-money Valuation Today ### $25 million ($250M / 10)

VC Investment ### $2 million

Pre-money Valuation Today ### $23 million ($25M - $2M)

Step-by-step VC method application

1. Estimate the Startup's Future Exit Value
This is often based on projected revenues and industry-specific
valuation multiples (e.g., price-to-sales ratios).

2. Determine the VC's Desired Return on Investment (ROI)

This represents the multiple of their investment that VCs hope to
receive upon exit.

3. Calculate the Post-money Valuation Today

Divide the estimated future exit value by the VC's desired ROI.

4. Calculate the Pre-money Valuation Today

Subtract the amount of investment the VC is making from the post-
money valuation.
Hypothetical Example:

Assumptions:
Projected revenues in Year 5 (exit year): $50 million
Industry average price-to-sales ratio: 5x
VC's desired ROI: 10x
Amount VC plans to invest: $2 million
See table above

Explanation:

Estimated Future Exit Value:

Assumptions:
Projected revenues in Year 5 (exit year): $50 million
Industry average price-to-sales ratio: 5x
VC's desired ROI: 10x
Amount VC plans to invest: $2 million
See table above

Explanation:

Estimated Future Exit Value:

We take the projected revenues for Year 5 ($50 million) and multiply
it by the industry average price-to-sales ratio (5x) to estimate the
future exit value, which comes to $250 million.

Post-money Valuation Today:

To calculate the post-money valuation today, we take the estimated
future exit value ($250 million) and divide it by the VC's desired ROI
(10x). This gives us a post-money valuation of $25 million.

Pre-money Valuation Today:

The pre-money valuation is the value of the startup before the VC
makes their investment. We calculate this by subtracting the VC's
planned investment ($2 million) from the post-money valuation ($25
million), resulting in a pre-money valuation of $23 million.
 Explanation

Based on financial projections

Average valuation multiple for the industry

Future value of the company at exit

The return VC wants on their investment

Value of the startup after receiving the VC

investment

Amount VC plans to invest

Value of the startup before receiving the VC

investment

ation

ecific

)
hope to

ROI.

the post-
nd multiply
mate the

estimated
esired ROI
.

e the VC
the VC's
uation ($25
SUMMARY

Valuation results summary by all methods

Discounted Cash Flow Method

Valuation by EBITDA Multiple

Valuation by REVENUE Multiple

Comparable Companies Method (EV/EBITDA)

Comparable Companies Method (EV/REVENUE)
Comparable Companies Method (P/E)

Replacement Cost Method

Net Book Value Method

Berkus Method

Venture Capital Method

Final Valuation

15,167

18,270
19,020

5,678
12,408
17,071

2,900

2,695

1,598

23,000