https://techcelerate.venturesHelping to raise Series A investment for tech companies.The valuation of a company is a synthesis of multiple scenarios and therefore an art of approximation. This is all the more difficult for investors who are looking to identify the new ventures that will make a real difference in their portfolio. If we were to compare it to a chemistry experiment, startups are a gaseous substance: they move fast and unpredictably, making it difficult to take a telling snapshot of their situation and formulate hypotheses that stand the test of time. Indeed, classic valuation models are geared towards predicting the long-term behaviour of solids, ie. mature companies ready for listing or already listed. This conundrum has become most felt since the advent of Silicon Valley and, more recently, the booming of European and Asian startup hubs. Investing in seed and early stage ventures has never been more exciting but the question of fair valuation still remains, as the current tools are ill-fitted for this exercise.
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Contents
Executive Summary
Introduction
Classic Valuation Methods
Blue Ocean Strategy for Startup Valuation
Impactful Criteria on Fundraising Success
Conclusion
References
Acknowledgements
About Early Metrics
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Executive Summary
The valuation of a company is a synthesis of multiple scenarios
and therefore an art of approximation. This is all the more
difficult for investors who are looking to identify the new
ventures that will make a real difference in their portfolio. If
we were to compare it to a chemistry experiment, startups
are a gaseous substance: they move fast and unpredictably,
making it difficult to take a telling snapshot of their situation
and formulate hypotheses that stand the test of time. Indeed,
classic valuation models are geared towards predicting the
long-term behaviour of solids, ie. mature companies ready for
listing or already listed. This conundrum has become most
felt since the advent of Silicon Valley and, more recently, the
booming of European and Asian startup hubs. Investing in seed
and early stage ventures has never been more exciting but the
question of fair valuation still remains, as the current tools are
ill-fitted for this exercise.
As a rating agency specialised in assessing the growth
potential of startups and scale-ups, Early Metrics has seen its
clients, investors and multinational companies alike, struggle
with this valuation process time and time again when trying to
invest in a young company. That is why we set out to conduct
this research into how the valuation method of new ventures
could be improved.
By assessing the strengths and weaknesses of three most
commonly used valuation approaches (DCF, multiples and
VC method) we were able to identify the key pain points to be
improved. By reviewing the available academic literature and
correlating our findings to our database of over 2000 rated
startups, we were able to define the adaptations that need to
be brought to traditional methods to produce fair valuation