Selecting a Startup Valuation Method?

Selecting a Startup Valuation Method?

If you google ‘Startup valuation method’, you will┬ácome across several valuation techniques and will have a hard time selecting which valuation method to use.

We have collated a list of valuation methods, their significance and when to use them here:

 

Method

Significance

When to use?

Berkus MethodSimple method, therefore, can be used by anyoneUseful for pre-revenue startups
LBOUseful when large acquisitions have to be madeShould be used when large amount of capital cannot be committed for the acquisition
SOTPCompany with different business segmentsDefending a company that is trading at a discount to the sum of its parts from a hostile takeover Defending a company that is trading at a discount to the sum of its parts from a hostile takeover
Restructuring a company to unlock the value of a business segment that is not getting credit for its value through a spin-off, split-off, tracking stock, or equity (IPO) carve-out
Venture Capitalist MethodPre and Post Revenue startupsCarried out from the investor’s point of view
Liquidation MethodNot a very startup-centric processUsed when the company’s final sale value has to be determined
First Chicago MethodPost revenue startupsUsed to determine the return on investment under all cases- failure, afloat and success
Comparable Transactions MethodPre and Post Revenue startupsSimple method used to compare two startups
Book Value MethodPost revenue startupsUseful for calculating the net worth of a startup
Scorecard Valuation MethodPre-revenue startupto determine the pre-money valuation of pre-revenue startups
Discounted Cash FlowPost revenue startupsDetailed Method requiring exact financial information and Projections, therefore, a difficult method
Risk Factor Summation MethodPre and Post Revenue startupsComparing your startup with already existing startups in the industry or segment

 

Read “Startup Valuation Methods” to see the description of these valuation methods and excel sheet with models to calculate your valuation.