How to Calculate the Valuation of a Startup?
Are you a startup owner looking to bring in investors for your venture or want to know your business’s market worth? Then it is obvious for you to ask how to calculate the valuation of a startup. You can hire startup valuation services that involve using various startup valuation methods to help you determine your business’s value. But knowing how to do it can help. So, here’s how to calculate a startup’s value.
Startup Valuation Methods
The top companies for startup valuation use various methods to calculate the value of a startup. Let’s overview four of them.
- Book Value Method
The book value method helps you do your startup’s asset-based calculation. While it is similar to the cost-to-duplicate approach, it is even more straightforward than it. Conventionally, a startup company’s book value is its total assets minus its liabilities. The method computes your startup’s net worth with its valuation.
- Cost-to-Duplicate Approach
The cost-to-duplicate approach enables you to calculate the cost it would take you to rebuild your startup elsewhere – minus the intangible assets, like your reputation, goodwill, etc. In this method, you add up the fair market value of your physical assets. You may also factor in aspects like research and development costs, patent costs, product prototype costs, etc. in this method.
- Risk Factor Summation Method
In risk factor summation, you begin with an initial valuation based on the other startup valuation methods. Further, increase or decrease the value in the multiples of $250,000 depending on risks affecting your business.
Here, low-risk elements get a double-plus grade and high-risk ones get a double-minus one. Some common risk categories include manufacturing risk, management, competition, reputation, technology, sales, marketing, etc.
- Venture Capital Method
The venture capital method is a go-to for venture capital firms. It helps you determine the pre-revenue valuation. Additionally, the method signifies the approach or mindset of investors, who look to exit the business after certain years. Top companies for startup valuation use two formulas to work the evaluation out.
- Anticipated Return on Investment = Terminal Value/Post-Money Valuation
- Post-Money Valuation = Terminal Value/Anticipated RoI
How to Calculate the Valuation of a Startup in Shark Tank?
Shark Tank is a US-based business reality television show where financiers (sharks) listen to proposals from entrepreneurs looking for funding. These financiers often expect a return on their investment. The benefit of this show is that while receiving investment for their business, entrepreneurs directly connect with stalwarts and gain access to their expertise and resources. Now, how is a business valued on Shark Tank?
If a business owner offers 25 percent of their business for INR 10,00,000 of investment, they assess their business value as INR 40,00,000. However, the Sharks would demand specific numbers and challenge their claims. The Sharks use various methods to value a particular business. They include earning multiple, revenue multiple, intangibles of valuation, and future market valuation.
How to Calculate the Valuation of a Startup Based on Funding?
Some of the top companies for startup evaluation use the 5X Your Raise Method. It is based on the money your startup raises. Startups and venture capitalists commonly use this method in conversations. This method relies on the idea that a startup’s value should be five times the money you’ve raised.
We hope this blog provided enough insights on how to calculate the valuation of a startup. The process and the methods used involve various technicalities. Accordingly, you should hire startup valuation services to ensure accuracy.
FAQ’S
- How can I calculate the valuation of my startup?
Startup valuation is done using methods like Book Value, Cost-to-Duplicate, Risk Factor Summation, and the Venture Capital Method. As one of the best valuation companies in India, Valuation India applies the most suitable method based on your business type and growth stage. - Why should I choose professional startup valuation services?
Professional valuation ensures accuracy and credibility—key for attracting investors. Valuation India, among the top valuation companies in India, offers expert business valuation services in India backed by deep industry experience and data-driven insights. - What is the best valuation method for pre-revenue startups?
The Venture Capital Method is commonly used for pre-revenue startups. Valuation India, one of the leading valuation firms in India, specialises in early-stage startup valuations to help you align with investor expectations. - How is startup valuation done on Shark Tank?
On Shark Tank, valuation is based on funding asked vs. equity offered, with methods like revenue multiples and future potential. Startup valuation companies in India like Valuation India follow similar investor-grade methods to determine accurate company worth. - What is the “5X Your Raise” method?
This method values a startup at five times the amount it aims to raise and is used in early funding discussions. Valuation India, backed by company valuation experts in India, helps verify such estimates with professional models and industry benchmarks.