How to Use Comps to Value a Startup: Part 2

How to Use Comps to Value a Startup: Part 2

February 23, 2021 by investor

In valuing a startup for an investment, it’s useful to find valuations by looking at similar startups.

This technique is referred to as ‘comps’ which stands for comparable.

This method looks for companies in the same sector and analyzes both exits and investments to determine the current valuation for the segment.

This is often a multiple of revenue or EBITDA.

Five to ten companies should give you an indication of the valuation metric currently in use.

Look for investments and exits that are three years old or less.

Valuations shift with the stock market, investor sentiment, and other factors.

For exits, note what the investor paid for.

Exits are driven by acquiring the team, the core technology, a product, or the entire business. 

This will help you determine the going rate for the company you are considering investing in.

 

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

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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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