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Parameters Update P5.0 – Methods weights, average valuations and VC method discount rates

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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 suitable information according to the stage of development the company is in. As before, the importance of quantitative methods increases as the company reaches more milestones.

Old Weights

Scorecard Checklist VC DCF with LTG DCF with Multiple
Idea Stage 33% 34% 11% 11% 11%
Development Stage
Startup Stage 26% 26% 16% 16% 16%
Expansion Stage

New Weights

New Scorecard Checklist VC DCF with LTG DCF with Multiple
Idea Stage 38% 38% 16% 4% 4%
Development Stage 30% 30% 16% 12% 12%
Startup Stage 15% 15% 16% 27% 27%
Expansion Stage 6% 6% 16% 36% 36%
2 | Average valuation used in the Scorecard Method and maximum valuation used in the Checklist Method

We base our new estimates on real transactions occurred all over the world since Jan 1st, 2016. Whenever we were not able to find a significant amount of real pre-money valuations in a given country, we broadened our perspective the closest larger geographic entity (namely, continental region and continent). You can refer to the table at this link to see how they will change for your country specifically.

3 | Discounts rates used in the VC method

The rates used are no longer dependent on projected revenues and are based on recent studies on VC practice in terms of portfolio composition and required return at exit.

Stage of Development Old Discount/Required ROI New Discount/Required ROI
0 – 2,5 M revenues in final year +2,5 M revenues in final year
Idea Stage 126.79% 140.22% 135.93%
Development Stage 109.12% 126.79% 114.74%
Startup Stage 58.48% 71.87% 89.12%
Expansion Stage 43.09% 60.04% 48.60%

You can check out the updated methodology that will go live on June 25th, 2018 here.

General comments on the effect of the changes

On average, final valuations will be 46% higher. This reflects changed conditions of world economy which are reported by several paper to affect startup valuation:

  • The world has completely recovered from 2008 and 2011 crises, with countries’ GDP back to old levels
  • Equity has become once again an interesting asset class, with financial operators moving their focus away from fixed income products
  • Inflation has been rising once more
  • Startup equity markets all over the globe are more mature, with more operators, and more efficiently processed information.

Please don’t hesitate to let us know in case you have any questions. Thanks for using Equidam!

The Equidam Team

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