Categories: Investment

Selecting a Startup Valuation Method?

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.

ekansh

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ekansh

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