Comments on: How to do company valuation http://blog.perfectspace.com/2007/10/16/how-to-do-company-valuation/ community, entrepreneurship and business strategy Sun, 08 Jan 2012 02:04:40 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Roz Lemieuxhttp://blog.perfectspace.com/2007/10/16/how-to-do-company-valuation/#comment-92109 Roz Lemieux Sun, 17 Jul 2011 02:46:33 +0000 http://blog.perfectspace.com/2007/10/16/how-to-do-company-valuation/#comment-92109 Thank you! As a first-time investment seeker (not first time entrepreneur), this is the first article I've found written in plain English about valuation. Very, very helpful. Thank you! As a first-time investment seeker (not first time entrepreneur), this is the first article I’ve found written in plain English about valuation. Very, very helpful.

]]> By: natehttp://blog.perfectspace.com/2007/10/16/how-to-do-company-valuation/#comment-68248 nate Tue, 30 Oct 2007 16:02:02 +0000 http://blog.perfectspace.com/2007/10/16/how-to-do-company-valuation/#comment-68248 John, I don't believe the angels expect higher multiples on their money because they generally get a good deal in terms of the % of the company they get for the money they shell out. Other than that, I'm not so sure, but those are the numbers I've been told by multiple VCs and angels. Nick, as John said, valuation is a complete guess. Therefore, I can't say with any certainty that the company will have a 2x or 3x multiple of revenue to equal a $40-60M valuation. So, I use revenue. Obviously valuation of a company which has been standing for a few years has a very different calculation for valuation. But this early, we based our valuation off a 1x multiple of revenue. John, I don’t believe the angels expect higher multiples on their money because they generally get a good deal in terms of the % of the company they get for the money they shell out. Other than that, I’m not so sure, but those are the numbers I’ve been told by multiple VCs and angels.

Nick, as John said, valuation is a complete guess. Therefore, I can’t say with any certainty that the company will have a 2x or 3x multiple of revenue to equal a $40-60M valuation. So, I use revenue. Obviously valuation of a company which has been standing for a few years has a very different calculation for valuation. But this early, we based our valuation off a 1x multiple of revenue.

]]> By: Nickhttp://blog.perfectspace.com/2007/10/16/how-to-do-company-valuation/#comment-68182 Nick Mon, 29 Oct 2007 23:51:58 +0000 http://blog.perfectspace.com/2007/10/16/how-to-do-company-valuation/#comment-68182 You have confused Revenue with Valuation. In year three is the company worth $20M or has revenue of $20M. It is very strange they are identical. If you change $20M Revenue in year 3 to $20M Validation in year 3 then it is correct. The company is worth $4M now and five times more in three years $20M. However much they invest it is 5x growth. The question is still how do you go from year 3 revenue to year 3 value. You have confused Revenue with Valuation. In year three is the company worth $20M or has revenue of $20M. It is very strange they are identical.

If you change $20M Revenue in year 3 to $20M Validation in year 3 then it is correct.

The company is worth $4M now and five times more in three years $20M. However much they invest it is 5x growth. The question is still how do you go from year 3 revenue to year 3 value.

]]> By: Dimahttp://blog.perfectspace.com/2007/10/16/how-to-do-company-valuation/#comment-67458 Dima Mon, 22 Oct 2007 20:19:31 +0000 http://blog.perfectspace.com/2007/10/16/how-to-do-company-valuation/#comment-67458 As far as I know, VCs use much simpler formula. They figure out how much money will it take to get to the first meaningful milestone, know that founders will not work hard if more than 20-40% of the equity is taken in the first round, and calculate the "valuation" from these numbers. As far as I know, VCs use much simpler formula. They figure out how much money will it take to get to the first meaningful milestone, know that founders will not work hard if more than 20-40% of the equity is taken in the first round, and calculate the “valuation” from these numbers.

]]> By: Johnhttp://blog.perfectspace.com/2007/10/16/how-to-do-company-valuation/#comment-66759 John Thu, 18 Oct 2007 00:18:42 +0000 http://blog.perfectspace.com/2007/10/16/how-to-do-company-valuation/#comment-66759 Just a couple of points: 1) Angels invest earlier than VC's and as such should expect a higher multiple than VC's. Why would they want or except less ? 2) As a startup, all revenue estimates are wishful thinking - particularly revenues that are 3 years away. Valuations are therefore wishful thinking and should not be relevant in any calculation. What I have found to be a more appropriate "valuation" can be calculated by looking at a) a Founders estimate of how much total investment is needed before break-even / exit and b) how much of the company the Founder would like at break-even/exit and how much the Founder is willing to let the Angel own (or the Angel demands to own) at break-even / exit. These figures will allow the Founder to work backwards to an appropriate ownership position for all parties at the time of the Angel investment (and thus a theoretical valuation. Note that my comments are really aimed at very early stage startups who have achieved very few milestones and are dealing with Angel investors. Just a couple of points:

1) Angels invest earlier than VC’s and as such should expect a higher multiple than VC’s. Why would they want or except less ?

2) As a startup, all revenue estimates are wishful thinking – particularly revenues that are 3 years away. Valuations are therefore wishful thinking and should not be relevant in any calculation. What I have found to be a more appropriate “valuation” can be calculated by looking at a) a Founders estimate of how much total investment is needed before break-even / exit and b) how much of the company the Founder would like at break-even/exit and how much the Founder is willing to let the Angel own (or the Angel demands to own) at break-even / exit. These figures will allow the Founder to work backwards to an appropriate ownership position for all parties at the time of the Angel investment (and thus a theoretical valuation.

Note that my comments are really aimed at very early stage startups who have achieved very few milestones and are dealing with Angel investors.

]]> By: natehttp://blog.perfectspace.com/2007/10/16/how-to-do-company-valuation/#comment-66732 nate Wed, 17 Oct 2007 16:25:21 +0000 http://blog.perfectspace.com/2007/10/16/how-to-do-company-valuation/#comment-66732 Here's another great write-up regarding <a href="http://www.instigatorblog.com/an-introductory-guide-to-startup-funding/2007/10/17/">Startup Funding by my friend Ben Yoskovitz</a>. You should read it. Here’s another great write-up regarding Startup Funding by my friend Ben Yoskovitz. You should read it.

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