With the VC method:
Steps
- Estimate after how many years your investor wants to exit
- Estimate your annual revenue at exit
- Estimate the buyer’s revenue multiple at exit
- Calculate your exit value. Exit value = annual revenue at exit * revenue multiple at exit
- Estimate your investor’s required annual return
- Calculate your investor’s required return multiple. Return multiple = (1 + annual return) ^ years till exit
- Estimate your exit value’s probability
- Calculate your investor’s required risk multiple. Risk multiple = 1 / probability exit value
- Estimate your investor’s dilution
- Calculate your investor’s required dilution multiple. Dilution multiple = 1 / (1 – dilution)
- Calculate your investor’s required money multiple. Money multiple = return multiple * risk multiple * dilution multiple
- Calculate your valuation. Valuation = exit value / money multiple