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How To Determine The Valuation Of Your Startup

  • Published December 14, 2022 6:51AM UTC
  • Publisher Osama Hassan
  • Categories Capital Raising Tips

How do I value my startup? 🤔

Without years of financial data to refer to, founders and investors have to rely on creative and subjective factors. Stone & Chalk have done a great job documenting these factors in their Guide For Startups Raising Capital.

Beyond these factors, SMEs have developed methodologies that provide a mental picture of the average size and price for a particular stage/round relative to other startups and deals in the marketplace.

Here are the 4 valuation methodologies highlighted in the guide:

1) Stage and Berkus Approach

Focuses on the stage of development and growth. The further down the pathway, the lower the risk, and higher the value.

Early stage business concept: $250K-$500K

Lean experiments and MVP built: $500K-$1M

Product Launched/Revenue Management in place: $1.5M-$2M

2) Raise Restricted Approach

Works on the basic assumption that the amount of money startups need to raise and the equity they’re prepared to give up determines the valuation range.

3) Incubators’ Approach

Some incubators apply a standard valuation of $1M or $1.5M for all companies in their program, with their investment of $50-$150K representing a 5-10% equity stake.

4) VC Approach

VCs typically calculate a startup’s value based on a process whereby investors, looking to exit within the first 5-7 years, first estimate an expected exit price for the investment. Then, calculating back to the post-money valuation today, they take into account the time and risk made by the investors to determine an expected return on investment.

Interested to learn other methods of valuing startups.

Click here to view the original Linkedin post.

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