Startups Valuation Using The Venture Capital Method | Harvard Business School, https://youtu.be/rZHlTEknXHM
How To Build A Startup Valuation Model From Scratch ? - Venture Capital Method, https://youtu.be/HaqNcNb0lZc
Scenario 1:
Founders want to exit the business in 5 years
Founders expect to generate $2.5M in sales in Year 5
Comparable listed companies are valued at 20x Price-Earning
Expected annual profit (net income) is $357K in Year 5
Incorporated with 100K shares (pre)
Company value at exit: Net income at exit date x PE multiple
$357K x 20x= $7.5M
Investment amount: $500K
Investment year: 0
Required return: 50%
Future value: Investment amount x (1 + Required return)^ (Exit term - Investment year)
$500K x (1+0.5)^(5-0) = 3,796,875
Value of firm: Annual Earnings (Projected NI) x PE (multiple) = Company value at exit
(1 + Required Return) ^Term
Or Post-Money Valuation
(357K x 20)/(1+0.5)^5 = 987,654
7.5M/(1+0.5)^5 = 987,654
Required ownership/Equity stake: Future value/ Company value at exit
3,796,875/7.5M = 50.63%
Initial investment/ Value of firm
= 500K / 987,654
Outstanding Shares (i.e. post-money): Outstanding shares (pre) / (1 - Required ownership)
100K/ (1- 50.63%) = 202,532
Investor/VC owns # shares: Outstanding Shares (i.e. post-money) - Outstanding Shares (i.e. pre-money)
202,532 - 100K = 102,532
Share price: Post-Money Valuation/ Outstanding Shares (i.e. post-money)
987,654/ 202,532 = $4.88
Initial investment/ VC Owns # Shares
= 500K/ 102,532
Pre-Money Valuation: Post-Money Valuation - Investment amount
987,654 - 500K = 487,654
Outstanding shares (pre) * Share price
= 100K*4.88
Other Valuation Methods for Startups
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