What do startup valuations mean?

Startup valuation is simply the value of a startup business taking into account the market forces of the industry and sector in which that business belongs.

Why is valuation so important?

Valuations can and should be used as a powerful driver of how you manage your business. The purpose of a valuation is to track the effectiveness of your strategic decision-making process and provide the ability to track performance in terms of estimated change in value, not just in revenue.

How do you value a startup?

The various methods through which the value of a startup is determined include the (1) Berkus Approach, (2) Cost-To-Duplicate Approach, (3) Future Valuation Method, (4) the Market Multiple Approach, (5) the Risk Factor Summation Method, and (6) Discounted Cash Flow (DCF) Method.

What is the market multiple approach to startup valuation?

The Market Multiple Approach is one of the most popular startup valuation methods. The market multiple method works like most multiples do. Recent acquisitions on the market of a similar nature to the startup in question are taken into consideration, and a base multiple is determined based on the value of the recent acquisitions.

How do you calculate pre-revenue startup valuation?

You’d multiply 30\% by 150\% to get a factor of .45. Do this for each startup quality and find the sum of all factors. Finally, multiply that sum by the average valuation in your business sector to get your pre-revenue valuation. Learn exactly how to assign percentages and weigh each factor in this explanation by Bill Payne, the method’s creator.

Do you need a list of assets to valuate Your Startup?

Although you won’t be able to reference the true market value of most of your assets (outside of your cash flow), your list of assets sets you up to be able to look at comparable valuations of other, similarly-equipped startups. For many startups, revenue initially serves primarily as market validation.