4 Valuation Methods Used By VCs and Angel Investors

Struggling with your startup's valuation? A lot of startup valuation relies on guesswork and estimation, meaning that there is no single, universally accepted analytical methodology for investors. Instead, VCs and Angels will draw upon several valuation method frameworks to understand the value of your startup.

Which method is used, depends on the stage of your business and the corresponding data points available in the market and/or industry you operate in. However, there are 4 commonly used early-stage and pre-revenue valuation methods that you should know about:

Scorecard Valuation Methodology

This method compares the target company to typical angel-funded startup ventures and adjusts the median valuation of recently funded companies in the region to establish a pre-money valuation of the target.

Venture Capital Valuation Method

The venture capital method reflects the process of investors, where they are looking for an exit within 3 to 7 years. First an expected exit price for the investment is estimated. From there, one calculates back to the post-money valuation today taking into account the time and the risk the investors takes.

Dave Berkus Valuation Method

Berkus Method. According to a super angel investor, Dave Berkus himself, the Berkus Method,

assigns a number, a financial valuation, to each major element of risk faced by all young companies — after crediting the entrepreneur some basic value for the quality and potential of the idea itself.

The Risk-Factor Summation Method

The Risk Factor Summation method (RFS) is a rough pre-money valuation method for early-stage startups. The RFS-method uses a base-value of a comparable startup for the valuation of your company. This base-value is then adjusted for 12 standard risk factors.

About Seedrs

Seedrs is an equity crowdfunding platform, headquartered in East London's Tech City, founded by Jeff Lynn and Carlos Silva in 2012. In 2020, Seedrs announced that 250 startups had raised funding through its crowdfunding platform during 2019.

Source: https://www.seedrs.com/academy/4-valuation-methods-used-by-vcs-and-angels