Purpose: hypothesis validation
Amounts: Typically the range is $0-250k
fff, Angel, pre-seed:
Purpose: Figuring out the product and
getting to user/product fit.
Amounts: Typically the range for seed is
$250 K-$2 million.
Purpose: Scaling the product and getting to
a business model (aka getting to true
Amounts: Used to be $2m-$15million with a
median of $3-$7 million. Series A amounts
have gone up dramatically recently to more
of a $7-15 million raise being typical.
Purpose: The Series B is typically all about
scaling. You have traction with users, and
typically you also have a business model
that has come together.
Amounts: Anywhere from 7 million to tens of
Purpose: The Series C is often used by a
company to accelerate what it is doing
beyond the Series B. This may include going
international, or costly acquisitions
Amounts: This can range from tens to
hundreds of millions.
and IPO :)
First things first:
What kind of company are you evaluating:
- a traditional brick and mortar company?
- a flying startup/IT?
It is all about risks!
The higher risks, the lower chances of
succeeding, the higher valuation multiples.
Validate idea, work on
You got a great team,
awesome idea and you are a
fundraising full speed!
Seems. that things are good. Work
Basic truth for fundraising on
the early stage:
To an angel investor business consists of:
- 50% of the team
if the team is weak, idea is irrelevant
- 25% idea
(understanding that the team will pivot)
- 25% revenue plan
hope is NOT a plan :)
Team - experience, working full/part time
Market - how big is the market? Is it
growing? If so by how much?
Competitors - how big are the barriers to
entry against competitors?
Assets - what type of assets do you own?
Customers - how many customers do you
have at this very moment? Are these
repeating or one off?
Method 1: The Dave Berkus Model
for early stage companies
Method 2: Scorecard method for
1. Start with the median value for the pre-revenue
companies in the region
2. Determine valuation factors and weights
3. Determine performance level for each factor
4. Calculate the weighted total for factors
5. Multiply median value by weighted total
For the [area] based on [data] we assume that valuation
ranges from $1.5M to $2.5M, with a $2.0M median
Method 2: example, company Z
Z company has the following characteristics:
1. A strong team (125% of norm)
2. Average technology (100% of norm)
3. Large market opportunity (150% of norm)
4. Single angel round needed (100% of norm)
5. Competition is stronger (75% of norm)
6. More work needed on sales/partners (80% of norm)
7. Excellent initial customer feedback (100% - 1other)
Method 2: example
2 mil average valuation x 1.125 multiple = 2,25 mil
Method 3: Investments In
At a minimum, your startup should be worth
the amount of money+ man-hours* that have
been invested in it by the founders during all
the time of startup existence.
*1 man-hour costs an average salary one would get
Method 4: Industry Comparables
Compare your startup to one that has had
an exit or is at the similar stage. Mind
different geographical regions!
MoneyTree report: get more industry
Method 5: Industry Multiples
What is your:
- User engagement
- # of installs
- CAC (customer acquisition cost)
- Customer LTV (lifetime value)
- ARPU (average revenue per user)
- Customer attrition (churn rate)
- Conversion rate (funnel)
Knowing the data above, estimate year RRR
(revenue run rate = revenue projections)
Method 6: DCF
Discounted Cash Flow utilizes cash ﬂow
projections for the business in future years,
discounting them due to the inflations and
DCF is not appropriate for early stage
companies with extreme lack of predictability
of cash ﬂows
R - interest rate, assuming 10%, influenced
by the riskiness of the business, its liquidity
other opportunities, etc
N - ordinal number of year you are
calculating it for
Years: 1 2 3 4
Cash flows assumptions 90 m 100 m 110 m 100m ...
Interest rate: 10%
For ex, DCF for year #2: 1/(1+0.1) = 0.83 * 100 m = 83 m
Company’s value = DCF year 1+ DCF year 2 + DCF year 3..
Method 7: P/E Ratio
Applicable for the mature companies.
A valuation ratio of a company's current share price
compared to its per-share earnings. P/E ratio =
Market Value per Share
Earnings per Share (EPS)
For example, if a company is currently trading at $43 a share and earnings over
the last 12 months were $1.95 per share, the P/E ratio for the stock would be
Company’s value = 1 years revenue * P/E ratio
Method 8: Ratios
Company’s Valuation = Multiple *
Multiple = Market capitalization of the
company (enterprise value)/EBITDA or
Sales (if no revenue yet)
Method 8: example
Enterprise Value = Share Price * # Shares
+ Preferred + Debt – Cash
let’s say $ 300 MM
Multiple = Enterprise Value / EBITDA
for ex: $300 MM/ $50 MM = 6.0x
Enterprise Value = Multiple * EBITDA
Enterprise Value = 6.0x * $40 MM = $240
Method 9: asset based
A type of business valuation that focuses on a company's
net asset value, or the fair-market value of its total assets
minus its total liabilities (=debts). The asset-based
approach basically asks what it would cost to recreate
The cost of assets (servers,buildings, machines, patents
etc) is taken from the balance sheet.