DCF in Startup Valuation
Question: Why would you use financial methods for the valuation of a startup company?
Answer: Because the public market uses it for valuations.
And more in depth, for these 2 reasons:
1| The public market has an effect on private valuations
With public market we mean companies traded on the various stock exchanges. They are usually large, but a small percentage of their shares is traded…
DCF Valuation for Startups
We already talked about projections, cash flows and relevant topics surrounding startup financial valuation. But how do you convert all these parameters to the future to calculate the value of the company today? One of the major methods to be used is called Discounted Cash Flow (DCF).
What is DCF?
To start, check out this tutorial from Investopedia to get a general idea of what DCF is.…
[PARAMETERS UPDATE P5.1] EBITDA MULTIPLES
You can refer to the table below to see how the EBITDA multiples for the industries available on the Equidam platform will change on March 4th, 2019. These are applied to compute the Terminal value in the DCF method with Multiple and the potential exit value in the VC method.
The data is based on the early 2019 estimate, published annually by Prof Prof. Aswath Damodaran of New York University.……
PARAMETERS UPDATE P5.2
On June 3rd, 2019 you’ll be upgraded to the latest version of Equidam with updated valuation parameters. This may result, on average, in a slight valuation increase.
What’s changing
1 | Average valuations used in the Scorecard Method and maximum valuations used in the Checklist Method
We base our estimates on real transactions by country since November 1st, 2016. Whenever we were not…
PARAMETERS UPDATE P5.1
On March 4th, 2019 you’ll be upgraded to the latest version of Equidam with updated valuation parameters. This may result, on average, in a slight valuation decrease.
What’s changing
1 | Average valuations used in the Scorecard Method and maximum valuations used in the Checklist Method
We base our estimates on real transactions by country since July 1st, 2016. Whenever we were not…
Data sources
EBITDA MultiplesVC Method and DCF with Multiple
Online database compiled and curated by Prof. A. Damodaran, NYU Stern School of BusinessBy industry
Updated annually
Also from NYU Stern, updated annually:Long term growthMarket risk premiumsBeta
Average and maximum valuationsScorecard and Checklist Method
Crunchbase database of angel,…
Methodology
More than an estimateStartups valuation should not be performed as a rule of thumb, or with black box practices that leave space for arbitrary conclusions
Traditionally innovativeTraditional valuation approaches are methodological and grounded, but they need to be adjusted to capture the value of startups
Leading valuation approaches, formalizedWe analyzed all valuation practices…
Parameters Update P5.0 – Methods weights, average valuations and VC method discount rates
On June 25th, 2018 you’ll be upgraded to the latest version of Equidam with updated valuation parameters. This may result, on average, in a valuation increase.
What’s changing
1 | Weights of the 5 methods on the final valuation
We adjusted the weights we apply to each method to compute the final average valuation. They are tailored to each development stage, in order to use the most…
Why isn’t asset based valuation for startups?
Many entrepreneurs have the misconception that the value of their businesses is the sum of their parts e.g. assets minus liabilities. The value of an early stage 3D printing startup that owns one machine worth $2M and has outstanding debt for $0.5M seems to be the acquisition price of the asset minus the outstanding debt, or $1.5M. In the financial jargon we call this approach the asset-based…
Valuation Multiples: Why Do We Use Them & How [Video]
Multiples is a term widely used in lots of valuation theories.
But why do we use valuation multiples?
We assume that a peer group of comparable firms for which the market value is available can be used as a proxy for the valuation of the company we are evaluating right now.
The multiple is a ratio, composed of two variables. In the numerator you have the valuation and in the denominator…