Very Easy Venture Capital Method
Originally published: 14/05/2021 11:41
Publication number: ELQ-42501-1
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Very Easy Venture Capital Method

Venture Capital Method - Very Easy Template

Are you a founder or potential investor and do you need a model that does not require many inputs or time in order to get a quick and rough valuation of a start-up?

This method can be used to value early-stage, pre-revenue companies, and it is known and widely used as valuation approach by venture capitalists all over the world

The concept is fairly simple: venture capital investors realize their returns when a liquidity event (an exit) occurs, and they expect a certain rate of return for their investments.

This can be expressed using a formula:

Post-money Valuation = Exit Value / Expected Return on Investment (RoI)

The exit value is the valuation of the company when it is sold and it is usually computed using a market multiple approach (i.e. P/E of comparables listed companies)

Remarks: The Venture Capital method is by no means a comprehensive model (i.e. it does not take into account capital structure and subsequent dilution) for valuing early-stage companies. Nevertheless, since it is very simple, quick and straightforward, it is widely used as a rule of thumb and a starting point for more in-depth models.

-> Only enter data into light blue-shaded cells with blue type font
-> All valuation calculations fall out from these inputs

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