In the corporate world, venture capitalists have a vast network of contacts. These relationships may be beneficial to the growth and success of start-ups since they assist the startup in forming alliances with potential consumers or commercial partners. Venture capitalists seek a competitive advantage in the market: they want their portfolio companies to be able to create sales and profits before competitors enter the market and cut into earnings.
VC Valuation for Startups
The Venture Capital Valuation Method (VCM) is a useful valuation method for determining a startup’s pre-money valuation. The investor’s point of view is reflected in the venture capital startup valuation. Startups are notoriously difficult to evaluate precisely because they lack operating income and, in some cases, a salable product, and will be spending money to get things moving. While some methods, such as discounted cash flows, can be used to assess both startups and mature businesses, others, such as cost-to-duplicate and stage valuation, are only applicable to new businesses.
What is Venture Capital (VC) valuation?
Venture capital is a type of private equity investment offered by venture capital firms or funds to startups, early-stage, and developing businesses that have shown great growth potential. In the private equity and venture capital industries, the term “pre-money valuation” is commonly employed. It is the process of valuing a company or asset prior to making an investment or obtaining funding. If a firm receives cash as a result of an investment, the company’s post-investment valuation will be equal to the pre-money valuation plus the cash amount. To put it another way, the pre-money valuation refers to the company’s worth prior to the investment. Equity investors, such as venture capitalists, employ it in the main market.
Why is VC valuation important for startups?
The valuation process is critical for startups and entrepreneurs because it allows them to assess how much equity they should give an investor in exchange for funding. Every business needs valuation since it determines how much stock an entrepreneur must provide to an investor in exchange for needed funding. This means that in exchange for a seed investment, a firm with a higher valuation must give a smaller amount of equity or shares to an investor.
VC valuation as a negotiation tool
Get your company’s VC valuation using trusted valuation methodologies such as income, market, and VC approach. Eqvista VC valuation acts as an independent valuation, in the middle of Founder and Investor. (i.e. if the Founder has a valuation of $20 million, and Investors have $10 million, this independent valuation will find a nice middle ground both parties can agree on). VC valuation reports prepared by Eqvista’s expert and certified business valuation professionals.
Proven valuation methods
When deciding the type or types of valuation to apply for a certain case, various factors must be considered, including the reason for the value, the industry, and the features of the unique business. There are 3 valuation methods often used in VC valuation, which are the market approach, income approach, and venture capital approach.
- Market Approach – The market approach uses publicly available data of similar assets and comparable situations to find the value of an asset’s worth. This method shines when there is a lot of data on similar transactions.
- Income approach – If there’s no data available, the income approach can be used in the valuation. This approach does not look into past transactions, but rather the business is valued at the present value of its future earnings or discounted cash flow.
- VC Approach – The VC valuation approach is commonly used for startup valuations. Through this approach, a company that has not achieved revenue yet can have a pre-money valuation. This approach can estimate potential exit values once certain milestones are achieved.
- Other valuation methods – Aside from the 3 valuation methods above, we also consider other methods that are used in startup valuations: Scorecard Valuation Method, Risk Factor Summation Methods and Berkus Method (valuation be stage).
Valuation reports prepared by expert and certified valuation analysts
The pre-money valuation will be multiplied by the freshly raised funding amount to arrive at the post-money valuation. The VC ownership stake is expressed as a percentage of the post-money valuation following an investment. On the other hand, the investment can be stated as a percentage of the pre-money value. The valuation report includes an overview of company background, competitive advantages, competitors, capital structure, industry status, financial statements, and valuation methods.
Why You Need a VC Valuation?
Before venture capitalists can even consider assisting you, they’ll need to conduct a valuation. A valuation is a calculation of the value of your business. Private equity refers to the value of a firm that is not publicly listed and is therefore not publicly traded. This informs venture capitalists about the viability of their business. Investors might use valuation data to help them make decisions during talks, such as whether to want liquidation preferences or more board representation.
- Enhances your pitch deck – A pitch deck can provide businesses and entrepreneurs with a detailed yet concise overview of how customers utilize their products or services to better their lives. If an entrepreneur seeks any sort of investment from the investors. By having a VC valuation, you can enhance your pitch deck by including what your company is valued at and list out your competitive advantages.
- Allows you to set the percentage of ownership of investments – A VC valuation can set the middle ground between startups and investors when it comes to ownership of investments. For example, your company has a pre-money valuation of $10 million, and you want an investment of $1 million. In this case, you should ask for 10% ownership.
- Advantages of VC Valuation – The company will be able to expand with the help of venture capital. Other techniques, such as bank loans, would not have allowed for this. Bank loans demand collateral and come with a repayment requirement. In venture capital, however, the investors are willing to take a risk because they believe in the company’s long-term success. As a result, venture capital financing is advantageous for start-ups with large initial costs and little experience.
Pricing starts from $1,890
Our VC valuation starts at $1,890, which includes a full valuation report and customer service support. Our NACVA certified analysts will conduct the valuation in a professional and timely manner. Our customer service support will also make sure the process is seamless and worry-free.
Get your VC valuation from Eqvista!
If you are looking to get your venture capital valuation, then you are at the right place. The VC valuation can be used to value early-stage, pre-revenue enterprises, which is why venture capitalists all over the world refer to it as a valuation strategy. Venture capitalists, like all other investors, realize their profits when a liquidity event (an exit) occurs, and they expect a specific rate of return on their investments. For more information about our VC valuation and other valuation services, contact us now!