The Startup Valuation Calculator is a valuable tool for entrepreneurs who want to assess the value of their businesses. Accurately estimate a company’s value by considering various factors such as market demand, industry size, and financial and competitive conditions. The calculator then uses these inputs to create a comprehensive report showing your startup’s current value and growth potential.
How do you calculate the valuation of a startup?
Methods to calculate the valuation of a startup
Comparable Pricing Method
This is one of the simplest startup evaluation techniques. Use companies like yours (e.g. similar MRR growth or churn) as anchors for your value. Although not very precise, it serves as a starting point for early-stage evaluations.
Discounted Cash Flow Method
The DCF method is based on estimating how much money a startup is likely to make in the future (expected future cash flow) using a discount rate. Startup value should be determined using both the DCF valuation method and industry standards. The DCF method is preferred by some startups over market-like valuation methods because it relies solely on hypothetical financial data.
Scorecard Method
A variant of the previous comparison method, this startup valuation method is used by angel investors. This allows you to compare your startup to other average startups in your industry or region by weighing subjective measures of success (team experience, product strength, competition, etc.). If your calculations show that your startup has average quality, you could be more highly rated.
Cost-to-duplicate method
The primary purpose of the Cost-to-duplicate method is to determine the start-up costs for a particular company. Developing a business plan is a good place to start as it forces the planning and estimating of a first-year financial plan.
Startup costs include:
Research funding: Researching the market you want to enter is important and business owners may choose to hire a market research firm to help them with this.
Loan cost: Banks and savings banks offer small business loans.
Tech cost: For businesses, these costs may include the price of websites, information systems, and software such as accounting and payroll programs.
Equipment and supplies: Cost is important whether you lease or buy equipment.
Advertising and promotional expenses include the costs of placing advertisements and hiring marketing companies.
Market Multiple Approach
Market multiples are calculated using recent acquisitions or deals with similar characteristics to startups. Calculated market multiples are used to value startups.
Future Valuation Multiple Approach
The goal of multiple approaches to future valuation is to predict the return on investment that investors can expect soon or about five to ten years from now. Over the forecast period, sales and cost projections are made. To value the startup, a multiple is applied to the appropriate metric.
Risk Factor Summation Approach
The total risk factor approach evaluates startups by quantifying all business risks that can affect the return on investment. The impact of various business risks, whether positive or negative, is considered and estimates are added or subtracted from the baseline depending on the risk impact.
The final value of a startup is determined by considering all risks and applying the sum of risk factors to the initial estimate. The following business risk categories are considered:
Management risk, political risk, manufacturing risk, market competition risk, investment/capital accumulation risk, technology risk, and legal environment risk.
How many times revenue is a startup worth?
Worth of Startup
1x – 5x:
This is the basic range. High-revenue multiple startups grow slowly at a pace of about 10% per year. If this range is expanded:
For businesses with transactional revenue, it works in multiples of 1x.
This happens when the business sells a low-margin item (such as hardware) or when the business fails and has no prospect of growing again.
3x to 5x:
The acceptable range for the investment sector is 3x to 5x sales multiples. Investors participating in the startup funding cycle prefer to select companies with earnings multiples in this space.
6x – 10x:
Companies with less than 50% growth often have revenue multiples in this area. Investors choose companies in this space to fund startups that grow at a rate of 30% to 40% per year.
10x – 20x:
This is the high-frequency multiple. Such broad ranges are found in companies growing at a rate of 300-400% per year.
What is the average startup valuation?
The average startup valuation is Rs 1 crore. This is considerably lower than the 15 crore rupees to 50 crore rupees once considered the ‘unicorn’ threshold. But it’s still pretty high compared to what you’ll get in your next job.
Startup valuations depend on how much investors think they can make from them in a few years, so they’re getting more and more expensive as the market becomes more competitive.
The startup average valuation has risen steadily since his around Rs 1 crore in 2014. In 2017 and 2018, it hit Rs. 5 crores. And in 2022, it’s been hovering around Rs. 10 crores.
How much equity is a lot in a startup?
Equity is a hot topic in the startup world. Optimal distribution of equity among founders, early investors, and employees is a topic that spends a lot of money and time. The percentage of a company you own determines your influence and control over it. The amount of capital that is considered a ‘lot’ varies by company, but is usually between 10% and 20% of total capital.
Wrapping Up
Entrepreneurs can make more informed decisions about pricing products and services, financing, and evaluating potential investments. A startup valuation calculator can help estimate a company’s worth. Knowing the true value of a company helps entrepreneurs make smarter business decisions and maximize their success.