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Startup Business Valuation
Course Objective
To learn how to value a private company for the
purposes of raising money.
Key Learning Outcomes
● Learn how assets are valued
● Determine the value of any business
● Understand how to have the conversation of
valuation with investors
What is Valuation
Valuation is value of an asset.
The asset in a private company is its "stock" or
equity which represents the % ownership stake
in the company.
How is Valuation set?
Requires an educated guess by the seller to
start with an "asking price":
● What have similar assets sold for?
● Why have they sold?
● What will be / are the primary drivers of value?
Valuation is "set" where the buyer and the
seller of an asset meet at a price.
Valuation: Every Asset Has Value
And it can be negative!
How Value Determined?
How Value Determined?
How Value Determined?
How Value Determined?
To bring in an investor, a Business Owner has
to sell something - that something is Equity
("Stock").
The amount of stock sold to the investor
represents a percentage ownership in the
company.
The "Asset" of a Business = Stock
● What have other similar companies been
valued at?
● What percentage of the company are you
willing to give up for $x
● Create a market and get people to "bid" - i.e.
make an offer to invest
How to Value Stock
A Financial Model with a Discounted Cash Flow
Model "DCF"
The Formal way to Value Stock
● Cash flow can be interpreted many ways –
there are no “right” or “wrong” answers
● You need to define the context of cash flow
and be consistent in its analysis
● Stocks: Many use earnings before interest
tax depreciation amortization (EBITDA) and
subtract Capital Expenditures
● Cash Flow needs to be what you as an
owner will reap from your investment
– after everyone else is paid.
You define Cash Flow
1. Future cash flows are estimated
2. Discounted back at an appropriate rate
(often a firm’s cost of capital)
3. Divided by ownership rights (shares) to
determine the value per owner (per share)
Discounting the Cash Flow
● Every asset is only worth what someone is
willing to pay for it
● Supply vs. Demand
● All valuations have highly subjective inputs
that need to be evaluated by the buyer (and
seller)
Every DCF Valuation can be argued
Valuation thru Modeling: Myth #1
Since Valuation is quantitative, Valuation is
objective
While quantitative, inputs leave plenty of
room for subjective judgments
Final values derived from models are
colored with human bias
Valuation thru Modeling: Myth #2
A well-researched model and well-done
valuation is timeless
Valuation can change everyday with
constant inputs from the marketplace
Summary. Valuation of an Asset is:
● Often subjective, colored by the bias of
its inputs
● Determined by
○ investor perceptions about it
○ Supply and Demand
● The Present Value of the future cash
flows
Keys to Success
● Create a market. The only way to sell stock is
to have a group of willing buyers!
● Leave the valuation conversation to the end -
get potential investors enamored with the story
first.
FAQs
Who sets a valuation?
Once you decide your valuation, do you put a
stake in the ground and that's what it is?
Pros and Cons of having a high/low valuation.
FAQs
Is there a right or wrong valuation?
Can valuation change over time?
Does my valuation change each time I try to
bring money in?
FAQs
What are typical valuations for startup
companies? Range?
Do I have to set a valuation before I know how
much money to raise?
Is the equity I have to give to investors
affected by my valuation?
FAQs
Does a higher valuation make me looked at as
more likely to succeed?
Do I have to have a valuation when seeking
capital?
Does a valuation play into investor
psychology?
FAQs
When and how do you negotiate Valuations?
Action Plan
● Discover an Estimated Valuation
○ What have other companies sold stock for?
○ What are you willing to give up?
○ Be informed of the economic upside of your
company
● Engage potential buyers
● Ask them to offer you a term sheet
○ Great video < 2 minutes
○ Engaging write-up
○ Unique rewards
Next Steps
● Join our Master Fundraising Course
● Join us now for 50% off
● "FAN" www.udemy.com/raisemoneyusingdigitalmedia/
● Feedback: Jason (at) INVESTyR.com

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Startup Business Valuation

  • 2. Course Objective To learn how to value a private company for the purposes of raising money.
  • 3. Key Learning Outcomes ● Learn how assets are valued ● Determine the value of any business ● Understand how to have the conversation of valuation with investors
  • 4. What is Valuation Valuation is value of an asset. The asset in a private company is its "stock" or equity which represents the % ownership stake in the company.
  • 5. How is Valuation set? Requires an educated guess by the seller to start with an "asking price": ● What have similar assets sold for? ● Why have they sold? ● What will be / are the primary drivers of value? Valuation is "set" where the buyer and the seller of an asset meet at a price.
  • 7. And it can be negative!
  • 12. To bring in an investor, a Business Owner has to sell something - that something is Equity ("Stock"). The amount of stock sold to the investor represents a percentage ownership in the company. The "Asset" of a Business = Stock
  • 13. ● What have other similar companies been valued at? ● What percentage of the company are you willing to give up for $x ● Create a market and get people to "bid" - i.e. make an offer to invest How to Value Stock
  • 14. A Financial Model with a Discounted Cash Flow Model "DCF" The Formal way to Value Stock
  • 15. ● Cash flow can be interpreted many ways – there are no “right” or “wrong” answers ● You need to define the context of cash flow and be consistent in its analysis ● Stocks: Many use earnings before interest tax depreciation amortization (EBITDA) and subtract Capital Expenditures ● Cash Flow needs to be what you as an owner will reap from your investment – after everyone else is paid. You define Cash Flow
  • 16. 1. Future cash flows are estimated 2. Discounted back at an appropriate rate (often a firm’s cost of capital) 3. Divided by ownership rights (shares) to determine the value per owner (per share) Discounting the Cash Flow
  • 17. ● Every asset is only worth what someone is willing to pay for it ● Supply vs. Demand ● All valuations have highly subjective inputs that need to be evaluated by the buyer (and seller) Every DCF Valuation can be argued
  • 18. Valuation thru Modeling: Myth #1 Since Valuation is quantitative, Valuation is objective While quantitative, inputs leave plenty of room for subjective judgments Final values derived from models are colored with human bias
  • 19. Valuation thru Modeling: Myth #2 A well-researched model and well-done valuation is timeless Valuation can change everyday with constant inputs from the marketplace
  • 20. Summary. Valuation of an Asset is: ● Often subjective, colored by the bias of its inputs ● Determined by ○ investor perceptions about it ○ Supply and Demand ● The Present Value of the future cash flows
  • 21. Keys to Success ● Create a market. The only way to sell stock is to have a group of willing buyers! ● Leave the valuation conversation to the end - get potential investors enamored with the story first.
  • 22. FAQs Who sets a valuation? Once you decide your valuation, do you put a stake in the ground and that's what it is? Pros and Cons of having a high/low valuation.
  • 23. FAQs Is there a right or wrong valuation? Can valuation change over time? Does my valuation change each time I try to bring money in?
  • 24. FAQs What are typical valuations for startup companies? Range? Do I have to set a valuation before I know how much money to raise? Is the equity I have to give to investors affected by my valuation?
  • 25. FAQs Does a higher valuation make me looked at as more likely to succeed? Do I have to have a valuation when seeking capital? Does a valuation play into investor psychology?
  • 26. FAQs When and how do you negotiate Valuations?
  • 27. Action Plan ● Discover an Estimated Valuation ○ What have other companies sold stock for? ○ What are you willing to give up? ○ Be informed of the economic upside of your company ● Engage potential buyers ● Ask them to offer you a term sheet ○ Great video < 2 minutes ○ Engaging write-up ○ Unique rewards
  • 28. Next Steps ● Join our Master Fundraising Course ● Join us now for 50% off ● "FAN" www.udemy.com/raisemoneyusingdigitalmedia/ ● Feedback: Jason (at) INVESTyR.com