Fundraising · Valuation

How do you get a good startup valuation?

Anonymous

October 2nd, 2016

Everyone talks about fundraising, the process, etc. but never have really experience a conversation or a dialogue in which someone explains what is the true process to receive a rock solid valuation. Can you all share some knowledge with all of us please?

Martin Omansky Independent Venture Capital & Private Equity Professional

October 3rd, 2016

(1) Pre-revenue valuations are usually arbitrary, except in the rare case when (2) the deal features previously successful entrepreneurs, superstar scientists or engineers, significant and protectable intellectual property, endorsements, including a major financial investment from a large company, or very large market potential. Sent from my iPhone

Arthur Lipper Chairman of British Far East Holdings Ltd.

October 3rd, 2016

The other and better approach to the financing of a new business is a sale to investors of an agreed percentage of the company’s revenues for an agreed period. This is called a royalty and does not represent any ownership of the business, just an ownership of the agreed percentage of revenues.To learn all about royalties see www.Royalties.Website. Arthur

Anthony Dobaj

October 2nd, 2016

Frankly until a priced round there's no such thing as a rock solid valuation. But doing some forecasting based upon thoughtful assumptions can help you defend the number you pull out of a hat.

Jerome Peloquin President, Family Fish Farms Network, Inc.

October 3rd, 2016

As a start go to Kahn Academy and go through their short course on Equity and Dilution ... I am assuming you have a busness plan, if not ... god bless you. Here 's what we did... we took our forecasted EBIT (earinings before interest and taxes) after 3 years and multiplied by two ... it is as good as anything if you are a pre cash start. jj Jerome Peloquin President The Family Fish Farms Network, Inc. 717 Lawrence Street, NE Washington, DC, 20017 cell: (410) 227-0498 (Skype) fishfarms1 LinkedIn Profile email: aquaponikus@gmail.com website: www.thefamilyfishfarmsnetwork.com We grow healthy local food ... save fresh clean water ... create decent paying jobs.

Jerome Peloquin President, Family Fish Farms Network, Inc.

October 4th, 2016

I am not in the same league with Arthur ... it is a sticky wicket for sure as no operating numbers and virtually no assets make valuation problematic ... here's how I proceded. An idea is the start and has no value (position one) however after you write a competent business plan with both pro forma and financial schedules for all assumptions, you now have value as it is an idea with an operating model of sorts ... as you move from business plan to operating plan that value grows. For example if you were to be captured by space aliens then, aome future MBA skilled in the art of start ups could take your plan and implement it ...and as you move from operating plan to "prototype,' that vaue continues to increase ...the question is ...how much? I used 50% of EBIT in year 5 of our formal business plan PS... no one bought it but they respected my argument

Irwin Stein Very experienced (40 years) corporate,securities and real estate attorney.

October 4th, 2016

You can buy an established operating company in many industries for an average of 3 times next year's earnings. A start-up with no current earnings is guessing about next year so I would discount from their projection. What is remarkable are the start-ups that getting funding with either enormous earnings estimates that they will never reach or enormous sales projections even though they will operate at a loss. 

Rob G

October 4th, 2016

it's more art than science.  each area of the country (silicon valley V Seattle, V Austin, etc.) seem to have their own idea of what a X stage consumer tech startup is worth V a b2b SaaS startup, biotech, etc.  It seems to have more to do with investor competition for comparable deals.  That competition occasionally leads to bubbles and a resetting of valuations.  You have to ask around your startup community and look for "comparables".  This is very different from the valuation process for a local consulting firm or dentist practice or restaurant.  The folks that do those sorts of valuations would like you to think it is much more scientific and objective, but it really comes down to some multiple of EBITDA for that sector. 

Arthur Lipper Chairman of British Far East Holdings Ltd.

October 4th, 2016

This is only a consideration if you are selling equity. The use of royalties avoids these considerations. Arthur

Andrea Gentili COO (and co-Founder) at Kobo Funds

October 6th, 2016

The only way to have a solid valuation is to have a good idea, in a growing market, and to produce a very credible Business Plan to be implemented by a competent and experienced management team.
The exact valuation depends very much on the perceived risk of the deal...that's why EV cannot be a science 

Arthur Lipper Chairman of British Far East Holdings Ltd.

October 4th, 2016

Why be concerned by valuation except as control maintenance? If you raise capital by selling a percentage of future revenues you do not have valuation concerns.