How Do VCs Value a Start-Up?
- 1. HOW DO YOU VALUE A START-UP? A GUIDE TO VENTURE CAPITAL VALUATION @guptamegh 1
- 3. THE BIG QUESTION How do VCs value a start-up? 3
- 4. 4 VC REQUIRES YOU TO VALUE A COMPANY AMIDST A LACK OF DATA AND CERTAINTY 4
- 5. IT’S A MIX OF ART & SCIENCE Art Valuing intangible things such as team, market trends, and product plus factoring in the unknown 5 Science Measuring the value of quantitative metrics such as revenue growth, churn, and traction
- 6. STAGE OF COMPANY DETERMINES THE BALANCE Early stage company valuation is more of an art. As a company matures, the process evolves to more of a science. 6 Company MaturityEarly Mature
- 7. 7 OKAY, SO NOW WHAT? FIRST, THE EASY PART… 7
- 9. GENERAL RULE OF THUMB 9 Total round size should buy 20-25% ownership, usually never >30% But remember, there’s ALWAYS exceptions… Series
- 10. 10 …AND HIGH GROWTH WILL ALWAYS COMMAND A PREMIUM
- 11. 11 AT THE END OF THE DAY, THESE ARE ONLY GUIDELINES TO MEASURE VALUE, THE REST IS…
- 12. …ART 3 key ingredients to account for: 12 Business TEAMBUSINESSMARKET
- 13. MARKET 13
- 14. MARKET HAS TWO KEY COMPONENTS 14 • Barriers to entry • Sustainable differentiation • Crowded space = margin erosion Competition T.A.M. • Size & Growth • Macro trends & timing • Measure of consumer intent
- 15. BUSINESS 15
- 16. BUSINESS IS DRIVEN BY FOUR FACTORS 16 Traction Revenue & product - is it growing? Business Model How does this make money? Product Strong value proposition & scalability? Financials Burn, previous financings & use of funds?
- 17. HOW STRONG IS THE PRODUCT OFFERING? 17 Answer varies based on the stage of the business Things to consider: Scalability Competitive Moat Accruing Benefits
- 18. IS THE BUSINESS MODEL ATTRACTIVE? 18 Short Sales Cycle Value Price Large Value Proposition Recurring Revenue
- 19. TRACTION: THE MORE DATA, THE BETTER 19 Growth Can take many forms such as Revenue, # of Customers, ARPU, LTV, ACV. Engagement Should measure the completion of a core activity, not just a login - pay attention to M/W/DAUs, virality coefficients, cohort performance. Retention Renewals and decreasing (negative) churn over time are important - network effects, accruing benefits and mounting losses help with this.
- 20. ALL ABOUT THE $$$ 20 Burn & Use of Funds • Dilution if future investment is needed • Primary vs. Secondary Previous Rounds & Investors • Post $ of last round • Other VCs participating • Too high a valuation could lead to trouble later
- 21. TEAM 21
- 22. TEAM 22 Done it before Track record Knowhow
- 23. 23 ONE FINAL THING: GOOD INVESTORS VALUE COMPANIES BASED ON WHERE THE “PUCK IS GOING TO BE”