We’re pleased to announce the addition of a new valuation method to the Equidam platform: the Multiple Method.
This optional tool expands our comprehensive valuation framework to provide additional flexibility, particularly for investors working with limited data on target companies.
What is the Multiple Method?
The Multiple Method represents a streamlined approach to startup valuation that applies market-based multiples directly to a company’s most recent financial performance. Unlike our existing Venture Capital Method, which projects future exit scenarios and discounts them back to present value, the Multiple Method takes current EBITDA or revenue data and applies an appropriate industry multiple to determine valuation.
This approach is conceptually similar to the VC Method in its use of multiples, but differs in several key ways:
- Current vs. Projected Data: Applies multiples to the most recent year of actual financial performance rather than projected future metrics
- No Discounting: Eliminates the complexity of survival rates, illiquidity discounts, and required ROI calculations
- Immediate Assessment: Provides a rapid valuation estimate based on present-day performance
When Should You Use This Method?
The Multiple Method serves as a pragmatic solution for specific scenarios where our standard five-method approach may be challenging to implement:
Limited Data Situations
When comprehensive financial projections aren’t available, the Multiple Method allows for valuation based solely on current performance metrics. This is particularly useful for investors conducting preliminary assessments or screening multiple opportunities quickly.
Comparative Analysis
For investors evaluating multiple companies within a sector, the Multiple Method can provide a consistent, comparable baseline across different opportunities.
Traditional Business Models
The Multiple Method can also be particularly appealing when valuing traditional businesses operating on well-understood models in established categories—think HVAC companies, laundromats, or barber shops. In these scenarios, the assumptions about the future are far more limited in scope, and intangibles play a much narrower role in value creation. For such businesses, a multiple applied to present revenue or EBITDA is more informative than it would be for a technology startup with uncertain scaling potential.
While financial projections remain the most insightful approach to valuation (since value is always fundamentally based on future performance, not past results), traditional businesses with predictable cash flows and established operating patterns represent another situation where the Multiple Method can provide valuable perspective alongside more comprehensive analysis.
How It Works
The calculation is straightforward yet grounded in robust market data:
- Financial Input: The method uses the company’s most recent EBITDA or revenue figures
- Multiple Selection: By default, we apply industry-specific EBITDA multiples derived from our analysis of over 30,000 public companies
- Calculation: Valuation = Recent Financial Metric × Appropriate Multiple
Customization Options
Through our advanced settings, users can refine their approach:
- Advanced Multiples Dashboard: Build custom comparable sets from public markets and use either average or median revenue/EBITDA multiples
- Manual Entry: Input your own multiples if you have access to reliable private market data (though we generally don’t recommend this approach given the limitations of private comparables)
Why We Keep It Optional
The Multiple Method is disabled by default and accessible only through advanced settings. This design choice reflects our philosophy around valuation best practices.
As we’ve outlined extensively in our writing on valuation methodology, and specifically on how we use multiples, relying primarily on multiples can be problematic for startup valuation. Multiples are:
- Crude instruments that fail to capture company-specific strengths and weaknesses
- Pro-cyclical, reflecting market sentiment rather than fundamental value
- One-dimensional, ignoring critical factors like team quality, technology differentiation, and strategic positioning
Our standard five-method approach—incorporating qualitative assessments (Scorecard and Checklist methods), intrinsic value analysis (DCF methods), and investor perspective (VC Method)—provides a more comprehensive and reliable foundation for valuation decisions.
The Right Tool for the Right Situation
The Multiple Method should be viewed as a supplementary tool rather than a replacement for rigorous valuation analysis. It’s most valuable when:
- Time constraints require rapid preliminary assessments
- Data limitations prevent full application of our standard methodology
- Additional perspective is desired to complement comprehensive analysis
However, for critical investment decisions, we strongly recommend the depth and rigor of our complete methodology. As we’ve emphasized in our analysis of startup valuation best practices, the best investment outcomes typically result from thorough, multi-faceted analysis rather than shortcuts.
Maintaining Valuation Discipline
The addition of the Multiple Method reflects our commitment to providing tools that serve real investor needs while maintaining our stance on valuation best practices. By keeping this method optional and emphasizing its appropriate use cases, we ensure that convenience doesn’t compromise analytical rigor.
This approach aligns with our broader philosophy that the best startups are valued, not priced. While market multiples provide useful context, sustainable investment success requires understanding the fundamental drivers of company value.
Get Started
The Multiple Method is now available through the advanced settings on the Equidam platform. To access this feature:
- Navigate to your valuation dashboard
- Click on “Advanced Settings”
- Enable the Multiple Method option
- Configure your preferred multiples and parameters
If you have questions about when and how to use the Multiple Method, or need guidance on selecting appropriate multiples for your analysis, our team is here to help. Contact us through the platform or reach out directly—we’re always happy to discuss valuation methodology and best practices.