This video discusses different methods for valuing a startup, including discounted cash flow, the Chicago Method, market comparables, and the Venture Capital Model. It also touches on using market data to negotiate valuation with investors.
What this video covers
In terms of the different methods that you’re going to have, you’re going to have the discounted cash flow, you’re going to have the Chicago Method, you’re going to have the comparables in the market. I think that this is a great one because if you take a look and, for example, you see your competitors have raised like x, y, and z, then what you do is, you put yourself in the middle. So, for example, if we’re talking about valuations that range between, let’s say,
5 million to $30 million. Basically, you would just put yourself in the middle and say
5 million, and even if the investor is telling you that perhaps the price is a little bit expensive, you can say, “Absolutely, but that is what the market is paying.” So, it’s very tough to negotiate against that.The other method that you’re going to find is the Venture Capital Model, which is benchmarking on the potential returns that the business is going to be able to generate. Then, you have the scorecard valuation method, which is taking a look and adjusting to what the seed valuation is, such as also the region, the segment that the business is in, and certain factors that are going to play a big part in getting that valuation.
The last one is the Risk Factor Summation, which grabs 12 characteristics of the business, and as a result of that, you come up with a valuation that you establish on your business.
When it comes to frameworks, especially if you’re looking to raise money for a tech-enabled company, hypergrowth business, there are different frameworks that you can use to guide you in the journey of establishing a price tag in your business.
Then you have the seed level. At this point, really, what you’re going after is perhaps $500,000 or more, and what the investor is going to be expecting is that you’re generating anywhere between $0 to $50,000 in revenue. Here, the type of valuation you’re looking at, especially if you’re in the U.S. in startup hubs like the East Coast or the West Coast, like New York or San Francisco, you’re going to be looking at a potential valuation that is going to be around .5 million.
When you’re at a Series A level, what you’re raising is anywhere between $3 million to all the way up to
5 million. The types of valuations that you’re going to be seeing are anywhere from
5 million all the way up to $40 million. But here, the types of revenues that the investors are going to expect are anywhere between
00,000 all the way up to
50,000. When you’re at a Series B level, you’re raising anywhere between
0 million, and it can go up all the way up to $50 million. The types of valuations that you’re looking at can go all the way up to
00 million, and in some instances, even further than
00 million.
At this stage in the game, the investor is going to expect to see anywhere between
50,000 in revenue all the way up to
million, and this is on a monthly basis. Again, on all the previous frameworks that I talked about, remember that the revenue is always per month.
Now, there is a big difference between pre-money valuation and post-money valuation. Pre-money valuation, at the end of the day, is the value that has been established by the investors that are coming in your round right now.
Essentially, for example, if it’s a
0 million pre-money valuation, and they’re investing, for example, $5 million, the post-money valuation is essentially
5 million. So, pre-money valuation is before the money comes in, and post-money valuation is after the money has been injected.
More from the library
Watch on Startup Fundraising · Open on YouTube ·
More videos
