Methods to value a post revenue startup
- posted by: vpego on 2016-01-12
- tagged:
tech-company, funding, investment, valuation
- score: 4
I’m looking for the best ways to calculate the valuation of a company that is generating half a million dollars of revenue per year.
More info: Recurring revenue business model (Software Product) with 35% of net income.
The goal is to have the right numbers so we can negotiate with investors for the first time properly.
Let me know what other info/data I should take in consideration.
Answer 8328
- posted by: Mruf on 2016-01-13
- score: 1
A copy from my self from a similar question:
I will give it a try, but this is only harsh university gibberish:
There are a few points which really matter, while evaluation startups:
- Market: It the market attractive (for your investor)? Do other VCs or investors already invest into that market? Think of it as competition.
- Reputation of the founder: how experienced are you guys in founding a company? have you already failed (and that’s a good thing, because you already experienced this process)
- Innovation and security: How strong does your product differs from previous approaches? Are you guys able to secure or patent your idea?
- Traction and scaleabilty: How does your customer group adept your product? How many users do you have? how strong are you growing per invested $?
- Revenues and proof of concept: Have you even sold a unit? Do you reach your own goals, so your further prediction are more valid?
The thing is, I can’t tell you how to rate your company this way, but least, if you can answer these questions in a profound and positive way, you will have bright future.
Normally, the investor rates you on your pitch and these questions.
I also found this link, but i can’t tell you how reliable it is:
https://www.caycon.com/valuation.php
Answer 8329
- How much have you currently raised?
- How much has it cost you (cash) to build the current technology?
- How many users do you have? (What is the life time value of the user: how much money will you make off of 1 customer in the lifetime of the business? Multiply that by the current amount of users you have)
- How much revenue have you generated?
- How fast are you growing (margin wise %)?
Multiply that by 4 and that’s your valuation.
Answer 11141
For a company this size, it is quite likely to be valued based on revenue or profit alone; most likely there are not significant assets (PPE) or other value to be considered, such as founder reputation and “innovation level” as previous comments mentioned.
Here are three methods that I would suggest averaging for a final rough approximate value starting point:
- Annual Revenue: Simply the value of your last 12 months revenue.
- Annual Net Operating Profit: Multiply total annual net operating profit by the number of years the business has been operating (e.g. if you are in business for 2 years, calculate 2x annual net profit)
- 5-Year Net Cash Flow: Take the current monthly net cash flow (free cash), and multiply by 60 months.
Based on the few details you mentioned and if you have been in business 2 years, your business might be worth $475k to 575k.
Answer 8337
Here are my two cents to assess the value for each potential buyer
- What is the cost for the potential buyer to acquire a new customer?
- What is the incremental revenue per new customer expected by the potential buyer?
- What are the synergies expected by the potential buyer?
Answer 9703
- posted by: Mowzer on 2016-07-13
- score: 0
I think this is a sufficiently difficult task (and likely outside your field of expertise) that you should not attempt it yourself. Instead, consider the following options.
- Evaluate comps. Find funded deals similar to yours.
- Hire a professional appraiser.
- Let the competition make bids.
- Ask an industry contact or advisor.
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