How to Use Comps to Value a Startup: Part 1

How to Use Comps to Value a Startup: Part 1

February 22, 2021 by investor

In negotiating the valuation, the investor can use current market comps or comparables to set the initial price.

By looking at companies in the same sector and stage, one can find the range of valuations.

From there, the investor can raise the valuation based on the values the startup has built already and lower it for the risks remaining.

Investors typically look for 20-25% of the equity for each raise.  

The investor can adjust the valuation depending on how much the company is seeking.

Other factors that can change the valuation include recent changes in: 

Market growth — has the market growth changed?

Competition — has the competitive landscape changed?

Also, by applying the current valuation to the fundraise, the investor can see if it is still in line with the longer-term roadmap of fundraising.

It’s important to ensure the startup doesn’t set the valuation too high on this round as it may prove difficult to raise a follow-on round at the next valuation.

Market comps give the investor a starting point but other factors must be considered.

 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.


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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.

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