How to Value Your Early-Stage Startup With the VC Method

With the VC method:

Steps

  1. Estimate after how many years your investor wants to exit
  2. Estimate your annual revenue at exit
  3. Estimate the buyer’s revenue multiple at exit
  4. Calculate your exit value. Exit value = annual revenue at exit * revenue multiple at exit
  5. Estimate your investor’s required annual return
  6. Calculate your investor’s required return multiple. Return multiple = (1 + annual return) ^ years till exit
  7. Estimate your exit value’s probability
  8. Calculate your investor’s required risk multiple. Risk multiple = 1 / probability exit value
  9. Estimate your investor’s dilution
  10. Calculate your investor’s required dilution multiple. Dilution multiple = 1 / (1 – dilution)
  11. Calculate your investor’s required money multiple. Money multiple = return multiple * risk multiple * dilution multiple
  12. Calculate your valuation. Valuation = exit value / money multiple