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 VC Quick Valuation Method
This method starts with the exit of the startup.
You assume the exit value your startup is being acquired for.
You then work backwards to calculate what your startup must be worth now based on that target exit value.
Here’s the VC method by steps:
1. Estimate your exit value.
Use simple exit value estimation using industry trends or estimate using Price/ Earnings multiples.
2. Calculate the post-money valuation
3. Calculate the pre-money valuation.
4. Finally, calculate the equity percentage owned by the investors.
Remember, option pools can have a big impact on valuation
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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.