How startup valuation works

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How startup valuation worksEarly Stage

Growth / scaling Stage

Exit Stage

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Early stage

• “Valuation” does not show the true value of the company

• It shows how much the company investor gets for her money

• Founders with success in the past tend to get higher valuations (they give up less of the company in early stage than first-timers)

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Early stage

• Valuation depends on how much money you need

• You need ENOUGH money to– Run 3 experiments and– Have at least 6 months of runway

• Investors want to see growth within 18 months

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Early stage

• Valuation depends on who you take money from

Average valuation

$2.6M $1.5M $1M $400k

Average investment

$640k $300k $100k $20k

Dilution 20% 16% 9% 5%

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Scaling stage

1. Investors find similar companies to determine their value to revenues ratio – then use it to calculate value of your company– Revenueoc/valuationoc ~ Revenueyou/valuation?

2. Take revenues this month, year, next year3. Calculate best, worst, and base cases4. Triangulate 3 cases5. Project when startup will exit6. Discount earnings by time value of money

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