Categorisation poses a significant challenge in startup valuation, with investors and founders frequently mixing up markets, business models, industries, and underlying technologies. This confusion can lead to inaccurate benchmarks and misaligned expectations about growth potential and risk factors, ultimately complicating the valuation process.
We address this issue by using four clearly defined attributes—Category, Development Stage, Industry, and Region—to systematically classify startups. Each attribute offers a unique lens through which to evaluate the company’s risk profile and growth opportunities, ensuring a more transparent and consistent valuation framework.
Startup Categorisation for Valuation:
Company Category (Company-Related Factors)
Company Category is centered around the defining characteristic of a startup, whether it be its business model or primary technology. This helps investors align their expectations and strategies with the sector-specific funding dynamics, comparative growth rates, and broader investor sentiment. Clearly categorising companies in this manner enhances the clarity around competitive dynamics and thematic relevance within the funding ecosystem. (Equidam Category List)
Development Stage (Intrinsic Risk Factors)
Development Stage focuses on intrinsic risk factors tied to the startup’s maturity. By clearly defining whether a startup is at the Idea, Development, Startup, Expansion, Growth, or Maturity stage, Equidam calibrates valuation methods (including qualitative methods like Scorecard and Checklist, and quantitative methods such as Venture Capital (VC) and Discounted Cash Flow (DCF) models) accordingly. This calibration directly impacts expected returns, required ROI, survival rates, and appropriate liquidity discounts, significantly refining risk assessment. (Equidam Development Stage)
Industry Classification (Market-Related Factors)
Industry Classification situates a company within its market environment, informing the valuation process through tailored industry benchmarks, growth trends, and economic conditions. Equidam leverages industry-specific parameters such as EBITDA multiples, long-term growth rates, industry betas, and market risk premiums, aligning valuations with real-world market conditions and competitive dynamics. (TRBC Industry List)
Country (Extrinsic Risk Factors)
Country or regional categorisation incorporates extrinsic factors, notably regulatory environments, economic stability, and market size. These geographic determinants influence valuation through regional risk-free rates, market risk premiums, and survival rates, alongside benchmarks drawn from regional averages and maximum valuation comparables. (Countries Served)
By structuring the valuation process around these four fundamental attributes, Equidam provides founders, investors, and advisors with a clear, systematic approach to startup categorisation. This holistic view not only simplifies the complexity of valuation but also ensures consistency and accuracy in reflecting the diverse range of startup potentials and associated risk factors, supporting better investment decisions and strategic planning.
Example Startups:
This table of example startups demonstrates how these categories help clearly identify and evaluate critical attributes, distinguishing companies by their inherent risk factors and their growth potential, ultimately informing more precise and strategic valuation outcomes.
| Company Category | Development Stage | Industry Category | Country | Description |
|---|---|---|---|---|
| Space | Development stage | Aerospace & Defense | USA | Developing satellite technology for affordable space exploration. |
| VR | Startup stage | Commercial educational services | Italy | Creating immersive VR experiences for education. |
| AI | Idea stage | E-Commerce & Online Marketplace Services | Argentina | Next-generation natural language processing for chat support. |
| Manufacturing | Growth stage | Industrial Goods | United Kingdom | Advanced manufacturing processes and materials. |
| Open Source | Development stage | Software & IT Services | Spain | Developing open-source solutions for data management. |
Influence on Valuation:
The table below outlines how each Equidam attribute influences the valuation process, illustrating the specific parameters that underpin the valuation framework. Understanding these influences allows stakeholders to interpret valuations clearly, ensuring decisions are aligned with both immediate risks and long-term growth potential.
| Equidam Attribute | Valuation Influence |
|---|---|
| Company Category |
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| Development Stage |
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| Industry Category |
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| Country |
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Case Study: Argentinian AI Startup
Here’s how this startup would be evaluated using our categorisation framework:
Company Category: AI
As an AI-driven startup, this startup would be evaluated based on current investor appetite for artificial intelligence solutions, the potential scalability of its technology, and the comparative growth trajectories of similar AI companies, as reflected in the financial projections. Given its idea-stage status, investor perceptions around innovation and disruptive potential in AI would heavily influence valuation.
Development Stage: Idea Stage
At the idea stage, this startup has not yet fully validated its product or market, making qualitative factors critical in the valuation. Equidam would employ higher required ROI and greater illiquidity discounts to reflect the elevated risk at this early stage. Qualitative assessments like team quality, intellectual property potential, strategic relationships, and initial demand validation become paramount, significantly influencing valuation through qualitative methods.
Industry Classification: E-Commerce & Online Marketplace Services
Classifying this startup within E-Commerce & Online Marketplace Services, Equidam would use industry-specific benchmarks, including EBITDA multiples, industry beta (reflecting higher volatility typical of tech-based marketplaces), long-term growth rates, and market risk premiums. These benchmarks provide context for projecting future cash flows and potential exits, directly influencing the valuation outcome through quantitative methods such as DCF and VC models. While being an AI company may allow the founders to tell a story of rapid growth, the best way to understand ultimate potential is by examining their target market.
Country: Argentina
Operating from Argentina influences extrinsic risk factors due to regional economic conditions, market size, regulatory environment, and currency stability. Equidam incorporates country-specific risk-free rates, market risk premiums, and survival rates into its valuation models, applying higher discounts or lower comparative multiples due to economic volatility and regulatory risks in the region. Benchmarking against regional valuations would also provide insights into realistic and achievable valuation levels in relation to investor expectations and appetite.
By systematically combining these four attributes, Equidam provides (potential) stakeholders with a balanced valuation that accurately captures the startup’s unique potential and its associated risks, thus informing strategic fundraising and investment decisions.
The Goal of Our Framework
This framework for categorisation is designed to help founders, investors and advisors developer a clearer picture of startups through their individual risk and growth factors, to produce a better understanding of price versus value. With careful consideration of the different aspects (business models, industries, technologies) and their influence on valuation, we help eliminate biases and hype from fundraising activity, providing a disciplined and structured approach to evaluating even the most novel and innovative ideas.
By grounding decisions in fundamental business realities, we enable clarity, confidence and a healthier investment environment which accelerates innovation.