In raising funding, valuation is a key number the CEO and investor must come to agree on. As a startup you must determine your target valuation. There are several methods. The first method is called Market Comp.
In short, you look at other companies of a similar sector, stage and revenue and determine how you compare. The steps for creating a market comp valuation are as follows:
1. Create a short profile of your startup based on revenue, sector, and subsector.
2. Find similar startups with known valuations to use as comps which is short for comparables.
3. Compare your startup profile to the comp’s profile and determine how far ahead or behind you are.
4. Adjust the valuation for their differences.
In the Market Comp valuation, use several comparisons. Don’t just rely on one. Market Comp works well when there is a heavy concentration of companies so it’s fairly easy to compare.
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Hall T. Martin is the Director of Investor Connect which is 501c3 non-profit 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 as a basis for investment decisions.