The And On Startup Valuations

2393 Words May 6th, 2016 10 Pages
A “How To” on Startup Valuations
Valuations are often referred to as an art, rather than a science. An outsider to the field would assume that there was one precise way to set the value for a growing company, but in the end it comes to preference. Each company is different with assets that are unique and not easily compared to others. At a baseline level, a valuation matters because it “determines the share of the company [entrepreneurs] have to give away to an investor in exchange for money” (Vital 2013). With billions of dollars on the line in a valuation, different methods are employed to determine accurate valuations. Proposed methods can vary based on company type, stage of funding, and many other characteristics. Bill Payne, long time angel investor, offers four popular methods as a starting point for startup valuation. These span from the Venture Capital Method in which valuations get their basis from potential return rates from exit events, the Berkus Method in which monetary standards are set against the progress a startup has made in commercialization, to the Scorecard Valuation Process in which the company is compared in a certain region and vertical range based on a set of characteristics, finally the Risk Factor Summation Method in which characteristics are again inspected in terms of what is expected in the future (Hudson 2015) .
While in the process of determining companies to fund, Venture Capital firms examine some of these same characteristics on…

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