In raising funding, valuation is a key number the CEO and investor must come to agree with. As a startup you must determine your target valuation. There are several methods.
One method is the Risk Mitigation Valuation Method. The Risk Mitigation method assigns dollar values to the startup’s accomplishments in each of four categories: Technology, Market, Execution, and Capital.
Technology Risk Mitigation — 125
• Prototype developed: $75,000
• 3rd party validation: $25,000
• IP filed: $25,000
Market Risk Mitigation — 175
• Market research: $25,000
• Early adopter program in place: $100,000
• Channel partners established: $50,000
Execution Risk Mitigation — 500
• Experienced founders: $200,000
• Prior exit: $250,000
• Detailed execution roadmap in place: $50,000
Capital Risk Mitigation — 150
• Early funding: $50,000
• Only two angel rounds needed: $100,000
If you add up all the values you get a pre-money valuation, $950,000 in this example.
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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.