Question

Which one of the following methods might NOT provide a reasonable startup valuation (choose one)?

a. Estimate of the startup’s exit value and timing, discounted to present

b. Exit values of similar companies, standardized to multiples such as earnings, size, or enterprise value, and applied to the startup’s multiples

c. Projected future company profits, discounted to present

d. Projected future cash flows, discounted to present

e. Negotiations with many VCs leading to a term sheet a lot of these VCs consider fair

Answer 1

Startups are generally identified with making losses at the initial stages of their business so they are less likely to sustain in the long run, when it comes to valuing them with profitability so when one is discounting the projected companies future profits to the present, it will mean that the company would be less likely to sustain because the company generally does not make profit.

Startups are generally identified with making losses at the initial stages of their business life, so projected future company profits which is discounted to the present, is not a correct method to valuing startup.

All the other statements are used to value startup.

Correct answer is option (C) projected future company profits, discounted to present