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:
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.