The Venture Capital method of valuation uses a discounted cash flow combined with a multiples-based valuation. 

The valuation takes into account cash flows in a best case, medium case, and worst-case scenario.

It then uses an industry multiple to set the anticipated sell price.

The cash flows and exit price are discounted giving three valuations – one for each scenario. 

Then each one is assigned a probability giving the final value with a probability-weighted sum of the three.

This method works well for growth companies and is better than a straight discounted cash flow because it factors in multiple scenarios. 

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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Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.

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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.