Valuation multiples are a simple, powerful way to translate business performance into price. They’re ubiquitous in public markets (P/E, EV/EBITDA, EV/Revenue, EV/FCF), and (if used carefully) they’re valuable for private companies too. On Equidam, multiples serve three distinct purposes:

  1. Pricing sanity checks via the optional Multiple Method (market‑based valuation from recent revenue or EBITDA).
  2. Exit potential in forward‑looking methods (e.g., VC Method and DCF with Multiple), where a terminal multiple is applied to the last projected year.
  3. Benchmarking to add context (vs. public comps, historic industry ranges, stage benchmarks, and the overall market).

This guide explains how to choose and apply multiples for startups, when to prefer EBITDA vs. revenue, how Equidam integrates multiples into a balanced five‑method framework, and how to use the platform features step‑by‑step.

Multiples 101 (and why private markets are different)

In public markets, comparison is easy: audited data, continuous pricing, and large peer sets. Multiples help normalize companies with different sizes and capital structures, like a supermarket’s “price per kg”.

Private markets, and especially early‑stage startups, complicate that picture:

  • It’s hard to find truly comparable private rounds with reliable financial details.
  • Today’s revenue may not reflect next quarter’s reality.
  • Even when comparable rounds exist, you may not know the round pricing or trailing metrics.

Trying to set an entry multiple directly from private comps often becomes reverse‑engineering, to justify a target price rather than to discover it. Instead, use multiples where they shine for startups: to model exit potential and to benchmark.

Revenue vs. EBITDA: which multiple when?

Equidam defaults to EBITDA multiples when estimating exit potential. Why?

  • EBITDA captures operating profitability and capital efficiency better than revenue alone.
  • Exit scenarios resemble public‑company realities, where profitability matters.
  • Fast‑growing startups with thin margins can look expensive on revenue while still being attractive on EBITDA once scale kicks in.

However, revenue multiples remain useful when:

  • The business is pre‑profit, but revenue quality is solid and recurring (e.g., SaaS with strong retention).
  • You’re benchmarking across a sector where EBITDA is commonly negative.
  • You need a quick market‑based sense‑check using the Multiple Method (see below), especially for traditional businesses with stable revenue.

Use EBITDA to capture exit realism; use revenue for quick screening and cross‑company comparison.

How Equidam uses multiples in forward‑looking methods

1) The VC Method: back‑solve from exit value

The VC Method starts from a plausible exit value in the final forecast year and discounts it at a required ROI for the company’s stage and risk profile.

Steps:

  1. Project EBITDA for the last forecast year (e.g., Year 5).
  2. Select an industry EBITDA multiple (public‑market derived).
  3. Compute Potential Exit Value: `Exit = EBITDA_T × Multiple`.
  4. Discount that exit by the required ROI over T years to get the post‑money valuation today.
  5. Subtract planned raise to obtain pre‑money valuation.

Why EBITDA here? It ties exit pricing to healthy operations in a mature state, matches public comps, and reflects the ambition embedded in your projections.

In rigorous practice, the entry multiple is an output, not an input. If the probability‑weighted outcomes justify it, a higher entry price can still be rational because the exit supports it.

2) DCF with Multiple: terminal value as exit

Equidam’s DCF with Multiple treats the terminal value as the realized exit at the end of projections, reducing assumptions beyond the forecast horizon.

Terminal Value

  • Start from Year T EBITDA and apply an industry EBITDA multiple.
  • Adjust for a country‑specific survival rate in the last year.
  • Discount to present as part of the DCF.

This approach is particularly transparent: the terminal value is simply another cash flow (the exit) arriving in the last projected year, rather than a perpetuity.

3) The Multiple Method (optional): quick market‑based valuation

The Multiple Method on Equidam offers fast, practical pricing grounded in recent performance. It is optional and sits alongside the five‑method framework.

When to use it

  • Limited data during early screening or when forecasts are absent.
  • Traditional, low‑variance businesses with predictable operations (e.g., HVAC services, salons, small manufacturing), where current performance is a fair proxy for value.
  • Cross‑company comparisons using a consistent multiple type.

How it works (3 steps)

  1. Financial input: by default, last‑twelve‑months EBITDA (from your Financials tab). You can switch to revenue.
  2. Multiple selection: by default, an industry‑specific multiple from Equidam’s database of 30,000+ public companies (updated regularly).
  3. Valuation output: `Value = Metric × Multiple`.

Examples

  • EBITDA: `€500,000 × 6.2 = €3.1M`.
  • Revenue: `€1,200,000 × 2.8 = €3.36M`.

Customization

  • Use the Advanced Multiples Dashboard to build public comp sets and apply average or median.
  • Manually enter a multiple if you have specific, reliable private‑market benchmarks (use with care).

Why it’s optional: For many startups, value is driven by future potential more than trailing performance. The Multiple Method is best as a sanity check or speed tool, not a substitute for the full framework.

Benchmarking with multiples: context, not conclusion

Beyond pricing, multiples are an excellent lens for context:

  • Against your public comps (current market mood and positioning).
  • Against historical industry ranges (cycle awareness).
  • Against stage benchmarks (how early‑stage valuations scale with risk/growth).
  • Against the broader market (macro froth or tightening).

Equidam’s benchmarking module exposes stage‑aware revenue multiple ranges.

These ranges are for benchmarking, not direct pricing. For actual valuation calculations, Equidam generally prefers public‑company multiples applied to the furthest forecast year, aligning your startup’s future state with mature comparables.

Choosing and defending the multiple

Use public comps by default

Public companies provide cleaner, more current data. On Equidam you can:

  • Rely on industry averages provided in‑product, or
  • Assemble a custom comp set in Advanced Multiples (filter to find appropriate comparisons based on industry, business model and geography), then choose mean/median.

Match the industry correctly

Averages hide heterogeneity. A payments processor won’t price like a horizontal SaaS tool; a capital‑intensive marketplace won’t price like a high‑margin API company. Narrow comps as much as practical, then sanity‑check against broader industry ranges. Equidam’s industry categorization looks at consumption rather production, so think about what your customers are looking for when considering where you fit best.

Align horizon and health

  • For exit modeling (VC/DCF with Multiple): prefer EBITDA and use the last forecast year.
  • For screening/benchmarking: revenue can be fine, especially if EBITDA is negative.

Avoid circularity

Don’t choose the multiple to get the answer you want. Document your comp rationale and keep a record of the selection (median vs. mean; outliers included/excluded). Multiples are a lens, not a lever to force the outcome.

Worked examples

A) VC Method with EBITDA multiple

  • Year‑5 EBITDA (plan): €2.0M
  • Selected industry EBITDA multiple:*18×
  • Potential Exit Value (Year‑5): `€2.0M × 18 = €36.0M`
  • Required ROI (stage‑appropriate): 70% p.a. (illustrative)
  • Post‑money valuation today: `€36.0M / (1 + 0.70)^5 ≈ €3.6M`
  • If raising €1.0M, implied pre‑money ≈ €2.6M

If the plan is credible and risks warrant a 70% target return, paying a post of ~€3.6M is consistent with a €36M exit in five years.

B) DCF with Multiple (terminal as exit)

  • Year‑5 EBITDA: €1.5M
  • Industry EBITDA multiple: 15× → Terminal value (undiscounted) €22.5M
  • Country survival factor in Year‑5: 85% → Adjusted terminal €19.125M
  • Discount along with cash flows at the chosen rate → Enterprise value

Treating the exit as the terminal cash flow makes the DCF less sensitive to perpetuity assumptions and clearer to explain.

C) Multiple Method (quick price sense‑check)

  • LTM EBITDA: €600k, industry EBITDA multiple 6.0× → €3.6M
  • LTM Revenue: €1.8M, revenue multiple 2.4× → €4.32M

Both numbers triangulate a reasonable market‑based range today, useful for screening and negotiations, but they don’t replace forward‑looking methods for venture cases.

Common pitfalls (and how to avoid them)

1. “Picking” your comp set to hit a target.
Fix: Define inclusion/exclusion rules up front (model, size, growth), prefer medians, and document choices.

2. Using private round chatter as gospel.
Fix: Treat private multiples as anecdotal. Use public data for calculations, private for color.

3. Applying public multiples to this year’s startup results.
Fix: For valuation, apply public multiples to terminal (future) metrics; for screening, it’s fine to use current.

4. Ignoring profitability at exit.
Fix: Favor EBITDA for exit modeling to reflect operating health.

5. Forgetting survival risk.
Fix: In DCF with Multiple, apply the survival rate to the terminal value.

6. Treating the entry multiple as an input.
Fix: Let the model produce it as an output from required ROI and exit assumptions.

How to do this on Equidam (step‑by‑step)

A) Model exit potential with multiples (default workflow)

  1. Enter projections (Revenue, COGS, OpEx) → platform derives EBITDA.
  2. Select industry → Equidam proposes an EBITDA multiple (public‑market derived).
  3. Choose methods: ensure VC Method and/or DCF with Multiple are enabled.
  4. Review outputs: check the exit value, discounting/ROIs, and resulting pre/post money.
  5. Stress‑test: vary EBITDA, multiple, or ROI to see sensitivity and defend assumptions.

B) Use the Multiple Method (optional)

  1. Go to Advanced Settings → enable Multiple Method.
  2. Select EBITDA (default) or Revenue.
  3. Accept the industry multiple or customize via Advanced Multiples.
  4. Review the market‑based valuation alongside the five‑method output.

C) Build and defend a custom comp set

  1. Open Advanced Multiples Dashboard.
  2. Filter public companies by industry, model, size, margins, growth.
  3. Inspect distribution; decide median vs. mean; remove outliers with rationale.
  4. Apply your chosen multiple to terminal EBITDA (VC/DCF) or LTM for Multiple Method.
  5. Save notes on selection criteria for your data room and investor Q&A.

D) Benchmark with stage and market context

  • Use stage benchmarks (e.g., Seed 13–53× revenue, Series A 12–25×, etc.) to sense‑check.
  • Compare to historical ranges to identify cycle extremes.
  • Contrast against broad market to calibrate expectations.

Frequently asked questions

Q: Should I ever price a venture‑stage round purely off revenue multiples?
A: Not as a sole method. Use revenue multiples for benchmarking and screening, but base valuation on forward‑looking methods that reflect exit and risk. Exceptions exist for traditional, stable businesses where the Multiple Method can be appropriate.

Q: My startup has negative EBITDA for the next two years, what should I do?
A: Use revenue multiples for benchmarking, but for valuation, project to a profitable terminal year and apply an EBITDA multiple in the VC or DCF with Multiple method.

Q: Can I use private transaction multiples as comps?
A: Yes, for context, but they’re often noisy and incomparable. Prefer public comps for calculations; document private comps only as supporting evidence.

Q: How often are Equidam’s public multiples updated?
A: Regularly; they’re derived from a database of 30,000+ public companies. Always review before finalizing a round to capture current conditions.

Q: How do stage multiples fit in?
A: Stage multiples are benchmarks to understand market temperature by stage, but not as direct inputs to exit valuation. Equidam generally uses public multiples for the terminal year in calculations.

Bringing it all together: a balanced, holistic valuation

Equidam deliberately blends multiple‑based and non‑multiple methods to avoid over‑reliance on any single lens. The five‑method framework triangulates value across perspectives, including forward‑looking cash flows, exit‑based reasoning, qualitative risk, and market sanity checks. Multiples feature prominently, but always in balance with projections, survival probabilities, and stage‑appropriate returns.

Use multiples to illuminate, not to dictate. For startups, where the focus is on outliers, let the model express ambition (terminal EBITDA), ground it in reliable public comps, adjust for risk and survival, and treat any entry multiple as the result of disciplined reasoning, not its starting point.

Practical checklist

  • [  ] Enter credible projections; ensure a profitable terminal year.
  • [  ] Select the right industry; review the default EBITDA multiple.
  • [  ] Build a custom comp set if nuance matters (Advanced Multiples).
  • [  ] For VC/DCF with Multiple, apply multiple to terminal EBITDA and discount appropriately.
  • [  ] Use the Multiple Method judiciously for quick, market‑based checks.
  • [  ] Benchmark against stage ranges, historical bands, and broad market.
  • [  ] Document comp rationale; avoid circularity.
  • [  ] Stress‑test: change EBITDA, multiple, and ROI; assess sensitivity.
  • [  ] Combine with non‑multiple methods in Equidam’s framework for balance.