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

c) In a startup it is very difficult to project future profits due to a lot of uncertainity.Although there might be casflows so we dont reject the discounted cashflow method.

We even use the market multiple method as mentioned in option 2 as we can take up similar companies and calculates their fundamentals and apply it to our startup.

Similarly we can also create an exit value of the startup because when we venture into a startup we think of an exit value it might have so that method is also acceptable.

And lastly the we even use the series funding method as mentioned in the last option to value the startup.