If you google ‘Startup valuation method’, you will come 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 Method | Simple method, therefore, can be used by anyone | Useful for pre-revenue startups |
| LBO | Useful when large acquisitions have to be made | Should be used when large amount of capital cannot be committed for the acquisition |
| SOTP | Company with different business segments | Defending 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 Method | Pre and Post Revenue startups | Carried out from the investor’s point of view |
| Liquidation Method | Not a very startup-centric process | Used when the company’s final sale value has to be determined |
| First Chicago Method | Post revenue startups | Used to determine the return on investment under all cases- failure, afloat and success |
| Comparable Transactions Method | Pre and Post Revenue startups | Simple method used to compare two startups |
| Book Value Method | Post revenue startups | Useful for calculating the net worth of a startup |
| Scorecard Valuation Method | Pre-revenue startup | to determine the pre-money valuation of pre-revenue startups |
| Discounted Cash Flow | Post revenue startups | Detailed Method requiring exact financial information and Projections, therefore, a difficult method |
| Risk Factor Summation Method | Pre and Post Revenue startups | Comparing 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.