10 Rules of Thumb for Startup Investment Valuation

Startup Professionals Musings

Once you have a potential investor excited about your team, your product, and your company, the investor will inevitably ask “What is your company’s valuation?” How much is NewCo worth to investors at this point (pre-money valuation)? Well, if the parties agree to a pre-money valuation of $1M, then the post-money investor ownership is 50% (founders give up half interest, and lose control). This is the most concrete valuation element, usually called the asset approach.

Ten Components of Startup Valuation For Investors

Startup Professionals Musings

Once you have a potential investor excited about your team, your product, and your company, the investor will inevitably ask “What is your company’s valuation?” How much is NewCo worth to investors at this point (pre-money valuation)? Well, if the parties agree to a pre-money valuation of $1M, then the post-money investor ownership is 50% (founders give up half interest, and lose control). This is the most concrete valuation element, usually called the asset approach.

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Forecasting ecommerce multiples at exit

The Equity Kicker

Mahesh Vellanki from Redpoint put up an interesting post yesterday about ecommerce valuations. revenues because growth is much lower – forecast at 5-7% next year, and their EBITDA margin is 8%. His major point is that revenue multiples aren’t that high, largely because the market is highly competitive and margins are low – often because of Amazon.

Spectacles and $SNAP’s $20B Valuation

Austin Startup

In summary: Snap’s current business doesn’t justify a $20B valuation. How can one justify a $20B valuation for Snap? The product that could most likely justify Snap’s $20B valuation is Spectacles. To be clear, I can’t forecast the details of how an augmented reality OS should work. To capture any material part of the $400B that Cook is forecasting, Snap will need to control the underlying operating system on which the glasses function.

10 Rules of Thumb for Startup Investment Valuation

Gust

Once you have a potential investor excited about your team, your product, and your company, the investor will inevitably ask “What is your company’s valuation?” How much is NewCo worth to investors at this point (pre-money valuation)? Well, if the parties agree to a pre-money valuation of $1M, then the post-money investor ownership is 50% (founders give up half interest, and lose control). This is the most concrete valuation element, usually called the asset approach.

10 Keys To Investor-Friendly New Venture Financials

Startup Professionals Musings

In that context, I offer the following financial projection strategies, from my own experience: Forecast a business that has plenty of room to grow quickly. financial forecast financial projections investor startup

Valuations 101: The Dave Berkus Method

Gust

We recently started a series of posts on establishing the pre-money valuation of pre-revenue startup companies for purposes of investment by seed and startup investors. Dave’s valuation model first appeared in a book published by Harvard’s Howard Stevenson in the middle nineties. Add to Pre-money Valuation. Note that the numbers are the maximum for each class (not absolutes) so a valuation can be $800K (or less) as easily as $2.5

Term-sheets and Valuations: Thinking about Negotiations - Startups.

Tim Keane

Term-sheets and Valuations: Thinking about Negotiations.   I’ve sat down with entrepreneurs and a copy of a term sheet guide I like [ “Term Sheets & Valuations - A Line by Line Look at the Intricacies of Venture Capital Term Sheets & Valuations ” by Alex Wilmerding, Aspatore Press.] The Valuation Question.   You can vary both valuation and term-sheet assumptions (in the gray boxes) to assess the impact on the values of the business.

Channel your Inner VC to Understand Startup Valuations

www.currentlyobsessed.com

Valuation is an important aspect of VC deal terms, and a major determinant of your ultimate outcome. I unexpectedly found that it was more helpful to think about the company valuation as an output variable in the fund-raising equation. In one particular negotiation, we went from one valuation to a much higher valuation (like double) in the course of a single day and two phone calls, simply by discussing the “what if&# scenario about increasing the total amount raised.

10 Ways to Size Your Company’s Value for Funding

Startup Professionals Musings

Once you have a potential investor excited about your team, your product, and your company, the investor will inevitably ask “What is your company’s valuation?” How much is NewCo worth to investors at this point (pre-money valuation)? Well, if the parties agree to a pre-money valuation of $1M, then the post-money investor ownership is 50% (founders give up half interest, and lose control). This is the most concrete valuation element, usually called the asset approach.

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Do the Math

Austin Startup

Further, you demonstrate on your spreadsheet that a venture return to early investors is plausible at a valuation that gives you enough equity to get the job done and to take care of you and your team at exit time. You want your valuation to keep marching upward; if you took in some seed money with the promised 10X venture return, you’ll hopefully be able to prove that you are proceeding on that trajectory. But, the manner in which you get paid can swing your valuation considerably.

Track the Ten Elements of Value for Your Venture

Startup Professionals Musings

I think you’ll be pleased by the momentum you maintain by keeping score. ###### Today's guest blog is by Akira Hirai, founder of Cayenne Consulting, a firm that helps entrepreneurs prepare for the fund raising process by developing strategies, business plans, financial forecasts, and presentation materials. Tags: scorecard venture value Akira Hirai business valuation By Akira Hirai We can measure success in many ways. In business, one important measure is the value of the company.

The Virus Survival Strategy For Your Startup

Steve Blank

Next, take a look at your actual revenue each month – not forecast, but real revenue coming in each month. If so, whatever revenue forecast and sales cycle estimates you had are no longer valid. “Winter is coming.”. This is the one blog post that I hope I’m completely wrong about.

Cracking The Code: SaaS Multiples: Recovery or Bubble?

Cracking the Code

With companies like Saleforce and SuccessFactors trading north of 8 times 2011 revenues, SaaS valuations are just back to the 2007 peak, but what is remarkable however, is that, after a period of strong correlation in 2008/2009, SaaS companies (represented by the SaaS 13 Index) have massively outperformed the overall technology sector (Nasdaq) in the past 12 months, creating a gap of more than 60%! Detailed SaaS Spreadsheet (Valuation and CAC benchmark). SaaS 13 Index Valuation.

The most important 2021 Predictions in entertainment tech and gaming

VC Cafe

“It follows that the goal of forecasting is not to see what’s coming. It is to advance the interests of the forecaster and the forecaster’s tribe.” Ark Invest forecasts that by 2030 the AR market could scale from under a $1 billion today to $130 billion.

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What is Sweat Equity Worth?

www.entrepreneur.com

Franchises Franchises Home Franchise 500 Home-Based Low Cost Top New Fast Growing Top Global Biz Opportunities Franchises for Sale Franchises A Bright Forecast for a Solar Panel Installation Franchise. Sweat equity is just one component of early-stage valuation. Foregone wages tends to be the anchor that keeps valuation negotiations from sailing into oblivion. Business & Small Business.

Looking for investors? Here’s how to value your startup

The Next Web

One of the questions I get, more often than not, is what is the appropriate valuation of my business. multiple interested investors competing for the deal, and driving up your valuation in the process). Never have an investor think they are the only investor pursuing your business, as that will hurt your valuation. And, before you start soliciting investment, make sure your business will be perceived as new and unique to maximize your valuation.

How To Keep Your Company Alive – Observe, Orient, Decide and Act

Steve Blank

Forecasted recovery date. Sales pipeline/forecast. Others are cutting their valuations. This article previously appeared in the Harvard Business Review. It’s been updated with new information about the U.S. Paycheck Protection program and the Economic Injury Disaster Loan program. What cashflow-negative companies must do to survive. We’re in uncharted territory with the Covid-19 pandemic. But it’s increasingly looking grim.

Desirable growth from a startup: AirBnB case study

The Equity Kicker

For very young companies the forecasts should show this level of growth, whilst companies at Series A or later will have to have shown this level of growth in the past as well as in their forecasts. The chart above shows the number of guests AirBnB has hosted each summer for the last five years. It was on Techcrunch this morning. It’s an amazing chart. AirBnB has delivered on the proverbial hockey stick growth that I imagine they had in their pitch deck back in 2010.

Cracking The Code: Death Sentence for SaaS.or for Lawson?

Cracking the Code

In a very entertaining interview published by Zdnet Asia last week, the CEO of Lawson, the ERP software company, forecasts the collapse of the SaaS market in two years - at the same time the recently published report from Deutsche Bank on SaaS ("SaaS and Cloud Computing" by Tom Ernst, June 2008) claims that on premise software sales have reached their peak. Detailed SaaS Spreadsheet (Valuation and CAC benchmark). SaaS 13 Index Valuation. Cracking The Code.

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What Most People Don’t Understand About How Startup Companies are Valued

Both Sides of the Table

Valuing any company can be difficult because it requires a degree of forecasting future growth & competition and ultimately the profits of the organization. I have been talking about my concerns about valuations for the past couple of years because, well, they’ve been rising very rapidly the past two years! ” “Mark has a vested interest in talking down valuations of startups.” Do Investors WANT Valuations to Drop?

5 Risks Of Buying A Business And Profiting Off The Opportunities They Create

YoungUpstarts

The risk: You base your purchase price, valuation, loans, and cash forecast off historical financials, only to find out a few months into owning the business that the numbers were all wrong and you are losing cash. Use the cash forecast in the report to secure better terms on your business loan or lock the owner into seller financing. by LJ Suzuki of CFOshare. Why start from scratch when you can get a great deal on what someone else started?

Is the Lean Startup Dead?

Steve Blank

Startups wrote business plans, generated expansive 5-year forecasts and executed (hired, spent and built) to the plan. What matters to investors now is to drive startup valuations into unicorn territory (valued at $1 billion or more) via rapid growth – usually users, revenue, engagements but almost never profits. And if the company does go public, the valuations are at least 10x of the last bubble. A version of this article first appeared in the Harvard Business Review.

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10 Answers That Make Your Startup Plan Investable

Startup Professionals Musings

Justify funding requirements, use of funds and specify a current valuation estimate. What are your forecasts for revenue, expenses and cash flow? Forecasts are evaluated as a level of commitment and a measure of your business savvy. Entrepreneurs who are looking to attract investors need to develop and pitch a plan -- preferably written -- that answers every potential investor question about your startup before it is asked.

Founders Should Set Aside More Equity for Their Team & “Split the Pain” With Investors

Hunter Walker

Since Homebrew typically leads/co-leads seed rounds, we assist in helping founders design and manage their pool against their hiring forecast. What if we split the pain [ie increase pre-money valuation slightly on our end and founders take slightly more dilution off their end]?” As you can see, Weekend VC Twitter gets pretty wild and crazy!!!! But employee option pool is important enough that I wanted to briefly expand upon my comment above.

How much of my business do I have to give to an investor?

Berkonomics

Careful about “hockey stick” forecasts. Email readers, continue here…] Most VC’s look for a 10x opportunity – that is – a ten times increase in the valuation from investment to liquidity event. Here’s a valuation example for you based on amount to be raised. When multiplied by 10x, the target valuation at exit would be the $40,000,000 quoted above. It is a fact that very few businesses reach the $40,000,000 valuation hurdle.

Angel Investment Criteria

SoCal CTO

By way of background for the question, there’s a great post by Bob Aholt, a Pasadena Angel: An Angel Investor’s Thoughts on Valuation. In his recent post, Top 10 Ways to Win a Business Plan Competition , he says: #4 I wanted to push this further down the list, but I just bristle at this: the revenue forecast. Remember my day job, I'm past Chairman of the Tech Coast Angels and I see a lot of pitches with revenue forecasts.

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8 Reasons Having a Business Plan Is Important for Small Businesses

Up and Running

You don’t need to write a 200-page document, but you will need something to hand to your banker or investor that shows that there’s a market for the problem your business solves and includes your key financial statements and forecasts. . LivePlan makes this easier by walking you step-by-step through the process of setting up and forecasting your financials—without complicated spreadsheets—so you can present your numbers feeling confident that you’ve put them together correctly.

8 Reasons Having a Business Plan Is Important for Small Businesses

Up and Running

You don’t need to write a 200-page document, but you will need something to hand to your banker or investor that shows that there’s a market for the problem your business solves and includes your key financial statements and forecasts. . LivePlan makes this easier by walking you step-by-step through the process of setting up and forecasting your financials—without complicated spreadsheets—so you can present your numbers feeling confident that you’ve put them together correctly.

Revenue Recognition’s Effect On M&A

YoungUpstarts

Effects on valuation. In some instances, revenue will be recognized earlier than in the past, and sometimes later, which will inevitably impact the valuation of the company. This will help appropriately predict future forecasts, making it important for companies to understand how revenue will be determined under the new standard. What effects this will have on the future revenue model of the company and management’s ability to forecast?

An Inside Scoop on the Funding Environment and What it Might Mean for You

Both Sides of the Table

If you want to see what was on my mind – I started foreshadowing change publicly in October 2015 with a forecast of what I expected in 2016 VC funding markets at a presentation I gave at the annual Cendana VC/LP conference hosted by Michael Kim. Investors had grown too used to the idea that any deal you funded would get marked up to a higher valuation in the next round and that’s clearly not always true. $30 million.

8 Ways An Investor Pitch Differs From A Product Pitch

Startup Professionals Musings

This allows them to calculate burn rates, break-even points and forecast the company valuation over time. When pitching to investors, entrepreneurs always seem to start with a customer pitch, then add a slide or two about the business. In reality, they need a separate pitch about the business, carrying over only a slide or two about the solution. Remember, investors are buying into the business, not the product.

Zulily – one of the fastest growing retailers of all time

The Equity Kicker

I knew that Zulily , which Crunchbase describes as ‘A daily deal site for mums, babies and kids’ is an amazing ecommerce success story which IPO’d last year with a valuation in the billions. As you can see from the chart below they went from a standing start in Q4 2010 to a forecast $1.1bn in net sales last quarter.

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10 Recent Neuromarketing Research Studies (and Their Real-World Takeaways)

ConversionXL

Don’t expect a single paper to define, for all time and every business, the ideal pixel width for product images or sample size for accurate sales forecasts. Multiple ‘buy buttons’ in the brain: Forecasting chocolate sales at point-of-sale based on functional brain activation using fMRI”. Small-scale neuromarketing tests for product messaging may accurately forecast sales.

Three types of acquisition – view from a public company CEO

The Equity Kicker

But as deals get bigger analysis of forecasts and the financial impact on the acquirer become much more important. Also very important to note is that the number of acquisitions declines precipitously as the valuation rises. Finally, a huge caveat, I put these rules and recommendations out there because I think they are a useful guide, but the quality of revenues varies hugely between companies and intellectual property and other elements can also drive valuation.

How Much Funding Should You Raise?

Up and Running

Any investor will put their valuation on your business based on a number of factors, including looking at important metrics for your business, patents, or assets. But raising too much money will cause the valuation to increase. Let’s say the valuation an investor puts on your business is $2 million. If the new funding increases to $3 million, however, they would have a 60 percent equity stake on the same valuation. More is always better, right?

When Did Profit Become A Bad Word For Entrepreneurs?

Startup Professionals Musings

Generate a 5-year financial forecast from opportunity data. Pundits may argue that recent business successes through user growth, including Twitter and WhatsApp achieving unicorn status (billion dollar valuations), show revenue and profit are no longer needed. As a startup advisor and investor, I find that more and more entrepreneurs avoid using the term “profit” in pitching their new venture. They seem to feel it conveys a message of personal enrichment at the expense of others.

Facebook and Instagram

The Equity Kicker

Valuation has been increasing rapidly and the deal likely won’t get any cheaper (Sequoia and other VCs who invested last week at a $500m valuation would likely want more than 2x if they stayed in for any length of time). When I was interviewing to become a VC for the first time in 1999 I was asked to do an analysis of AOL’s valuation and I said then, as I am saying with Instagram now, that it only makes sense in the context of the valuation of other similar companies.

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Group Finance Director

Transformify

In this role you will work closely with the senior management and executive board, supporting in the businesses planning and strategy.

Facebook’s mobile explosion

The Equity Kicker

They have yet to start monetising their mobile traffic and it is growing really fast – therefore if you believe they will succeed in wringing cash from mobile then you are a long way towards believing their financial forecasts and their rumoured $100bn valuation. Facebook’s ability to make money from mobile is a hotly debated topic in the run up to their IPO.

Could you answer these tough investor questions?

Berkonomics

Valuation and fund-raising : How did you arrive at your proposed pre-money valuation? As most human endeavors fail to achieve the results originally hoped for the above questions are fair and reasonable – because your angel investor is being asked to accept your forecasts and event predictions to entice him or her to invest in your enterprise. By: Arthur Lipper.

SaaS has been hot for a while, now blistering

The Equity Kicker

HR software business Workday has just upped the proposed share price in its coming IPO to $24-26, taking its valuation over $4bn. That’s 30x this years forecast revenues of $134m. I know a few of these businesses and they have great products which deliver real value to their customers, combine that with strong growth and you have a recipe for building real value, which is why these companies are attracting such high valuations.

2020 Accel Euroscape: Decacorn Unleashed

Cracking the Code

This summer saw two record transactions within a month, as UiPath became the first European Cloud decacorn in July and Visma, a Norwegian company, became the world’s largest ever software buyout with a $12B+ valuation.