The Multiples Approach
This approach is usually used for later
stage companies and utilizes a factor on certain financial
dimensions of a business
Examples of Multiples:
• Company Value = EBIT multiple * EBIT
• Equity value
per member = Total Equity Value / Total members
• Equity value per Eye Ball = Total Equity Value
/ Total website visitors
For example in IT industry sales (revenue)
to value (marketCap) multiple is between 0.5 and 3; average
being 2 ...
So a company with $10M revenue is worth
$20M .. more specifically prices/sales ratios:
| Industry |
Revenue Multiple |
| Application Software |
3 |
| IT Services |
1.2 |
| Business Software & Services |
2.6 |
| Internet software & Services |
2.4 |
| Real Estate development |
1.2 |
| Property management |
0.9 |
| Insurance Brokerage |
1.3 |
| Regional Bank |
2 |
| Grocery Stores |
0.2 |
| Jewelry Stores |
1.4 |
| Restaurants |
2 |
| Biotechnology (highest) |
4 |
The Market Comparative Approach
– suitable when value yet another dot.com
This is based on reference
to open market transactions involving similar companies
Venture Capital Approach
Post Money Valuation = Valuation at Exit
/ Return on Investment(ROI)
The Income Approach
Investment Approach determined by reference
to a detailed investment analysis using the techniques
of financial statement analysis and risk measurement theory.
Discounted Cash Flow Valuation
Recognizes future earnings by calculating
the present value of projected cash flows at a reasonable
present value discount rate.
The discounted cash flow method is very
effective because it allows values to be determined even
when cash flows are fluctuating. A start-up or new venture
may expect to lose money in the first years and then make
money in later years.
DCF value = discounted cash flows + discounted
residual (terminal) value
Terms
Fully Diluted Basis
Fully diluted basis is a methodology for
calculating any per share ratios whereby the denominator
is the total number of shares issued by the company on the
assumption that all warrants, options and preferred stocks
are exercised.
Pre Money Valuation
Pre-Money Valuation is the valuation of
a company prior to a round of investment. This amount is
determined by using various calculation models, such as
discounted P/E ratios multiplied by periodic earnings or
a multiple times a future cash flow discounted to a present
cash value and a comparative analysis to comparable public
and private companies.
Termanal Value
The value of a company at the exit time
(for investor).
Your feedback and contributions are welcome.
For articles and any information that might interest our visitors,
please contact us at ca@StartupValuation.com
