New Valuecruncher Report Template - Early Stage Company Valuation
Valuecruncher Early Stage Valuation Report (Example) - Click Here
Over the last couple of months Valuecruncher has received a number of queries asking how to value early stage companies. The majority of these early stage valuations have been for the purpose of capital raising. Valuecruncher’s March Newsletter provides an outline of how venture capital (VC) investors approach valuation.
Typical valuation methodologies have limited or no use when attempting to value early stage companies.
- Discounted Cash Flow (DCF)
The uncertainty surrounding the financial projections of early stage companies limits the effectiveness of DCF valuations. Using a scenario analysis can provide an idea of value across a series of potential outcomes but the subjective nature of the scenario construction and relative probability of each scenario make it difficult to make an investment based on these outputs.
- Comparable Company Analysis
The absence of publicly available information and the loss making nature of early stage companies voids the use of comparable company analysis.
- Asset Based Valuations
Asset based valuation methodologies such as net tangible assets typically do not capture the value of the growth potential of early stage companies.
Valuecruncher has constructed a new valuation report that uses DCF scenario analysis to provide three alternative scenario based valuations reflecting a range of potential outcomes for the company. These scenarios are designed to highlight the value impact of not achieving projected targets. The new report template complements the DCF valuation with a VC valuation. The VC approach assumes that the investor requires a 10 x return on investment over 3-5 years. Valuecruncher estimates the value of the company at the 3-5 year horizon using the financial projections of the client and market data of comparable established companies. Working backwards from this estimated exit value Valuecruncher estimates a valuation today based on the VC investors required return.
The VC approach is designed to give a robust indication of the post-money valuation VC investors will place on early stage companies. It is important to note that the VC valuation represents a post-money valuation (value after any required capital has been raised), this valuation will generally be lower than the DCF base case but should fall within the range defined by the scenario analysis.
This new Valuecruncher valuation report uses the standard Valuecruncher Input Sheet.
Valuecruncher Early Stage Valuation Report (Example) - Click Here