Comments on: What’s The Value Of My Startup?

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By: mmacleod

mmacleod — Fri, 31 Jul 2009 02:20:13 +0000

Fair enough. I wish all VCs were this rational. I equate it to gasoline prices: the minute the spot rate for crude changes, so does the price at the pump, even though the spot crude won't hit my car for a long time. Similarly, a drop in potential acquirer appetite or market cap today affects my valuation today even though I won't sell to them for 5 – 7 years as you say. This is why VC valuations were down 24% last quarter.

By: mmacleod

mmacleod — Fri, 31 Jul 2009 02:20:13 +0000

Jason,

It's clear from your post that valuation involves many variables. I was surprised not to see more emphasis on exits in the criteria listed above. I have seen all of these factors in the past. But, to me the actual math (to the extent that there is math) goes like this:

Range of likely exit prices based on list of acquirers, comparable transactions, etc?
Range of time to these exits?
Return requirement per annum?
Capital required to get there?
Target ownership % at exit?

From these variables you back into a pre-money today.

Mark

By: jason4307

jason4307 — Fri, 31 Jul 2009 02:20:13 +0000

I’m not saying that exits aren’t considered, but they are 5-7 years out for an early-staged investor and all I know about 5-7 years out is that I don’t know anything about 5-7 years out. It’s impossible to gauge the M&A market, who are potential acquirers, if there will be an IPO market, etc. It’s not that we don’t consider it, but it’s really so speculative that I would caution folks not to overrate it.

By: Alain Raynaud

Alain Raynaud — Fri, 31 Jul 2009 02:20:12 +0000

#2 is the key. Valuation is a sale, you have a product (your startup). If there are no buyers, you are worth $0. If buyers compete, you can raise your valuation. All the other points are excuses to justify why you are not getting a certain valuation, but in the end, the market decides. Comparables and market size don't matter if no one makes you an offer.

By: tom

tom — Fri, 31 Jul 2009 02:20:12 +0000

Any suggestions for firms, consultants, etc who can help start ups determine valuation?

By: Jerry

Jerry — Fri, 31 Jul 2009 02:20:12 +0000

Let the force be with you, float in the sea of energy and the valuation will show itself…
Repeat this ten thousand times and one day, be a master, you shall

By: Dr Frank F Craig

Dr Frank F Craig — Fri, 31 Jul 2009 02:20:12 +0000

The valuation is usually done uisng recent "market comparitors" investments in the seed to start-up early years. These are used by the VC, but an astute entrepreneur can also get their own data – which may be slightly higher but defensible. Once the company starts to generate income (and the risk is reduced), typical financial calculations are then als done using e.g. NPV, IRR, etc..

By: jason4307

jason4307 — Fri, 31 Jul 2009 02:20:12 +0000

If you are talking about 409(a) valuations (tax) or FAS 157 valuations (audit), then yes. But if you are asking about valuing startups in relationship to a financing, then no. There are no firms that a VC would trust to set the price. If you are talking accounting, email me (http://www.foundrygroup.com/team/jasonMendelson.p.../>

By: Lance

Lance — Fri, 31 Jul 2009 02:20:12 +0000

In the end, it's all about the negotiation. It is important, however, to bring a value to the table to start the negotiation with. I have my own post about this at startupfinancialmodeling.blogspot.com and hope to have a few in the future about some specific valuation methods.

Thanks!