The Art of Startup Valuation

By Sam Griffiths on 16th September 2015

Valuing the equity of a company is not an exact science. There are thousands of highly paid analysts who work at banks, research companies and asset managers whose job it is to value companies. The majority of these analysts value established, publicly listed companies about which there is a wealth of information and a track record stretching back many years. Despite this, all analysts will have differing valuations for any given company and history often proves them wrong. 

The Art of Startup Valuation

Valuing startups, which make up a large proportion of the companies that we see equity crowdfunding, is even more difficult. How do you assign a value to an idea? How do you evaluate a company with no track record or no revenues? Is there an appropriate peer group for comparison? There are those that advocate a scorecard methodology for valuing startups, others believe that a discounted cashflow (DCF) powered methodology is still relevant. One thing that everyone is in agreement with is that there is no ‘correct’ way to value a startup.

When making investment decisions it is useful to have as many data points as possible. The majority of crowdfunding campaigns provide some financial statements and some even provide financial forecasts. These will be provided by management and the level of due diligence carried out will vary. The investor must decide for themselves whether the forecasts are fair, optimistic or pessimistic. Getting from financial forecasts to a company valuation requires further analysis. A good place to start is to consider the value that is assigned to similar, comparable companies. This is where AlgoValue can help.

Founded in Tel Aviv in 2011, by former PriceWaterhouseCoopers valuation experts Raphael Meyara and Tsachi Hageg, AlgoValue is streamlining the way valuations are performed. The SaaS company has enjoyed a rapid rise in usership, with a wide client base that includes accounting firms, valuation firms, VCs, private investors, startups, and law firms - as well as crowdfunding and secondary market platforms.

AlgoValue’s Enterprise ValuatorTM is an online solution for valuing early stage and mature companies. Users can plug in current or forward looking financial metrics for a company they wish to value, and the advanced automated process will then produce a valuation range for that company within minutes. The Valuator uses the same methodology followed by valuation firms, investment banks, and major worldwide accounting firms, including the ‘Big 4’. It easily enables users to value any company - whether or not that company is at seed stage, generating revenue, or profitable. The system gives instant access to a database of current and historical multiples from over 11,000 comparable traded companies.

AltFi plans to use AlgoValue’s outputs as a reference point to enable investors to assess the valuations of companies that we write about in our CrowdView column. The inputs to these valuations will be management projections provided by the companies. If investors wish to use AlgoValue to test their own assumptions or to value a campaign that we have not covered on CrowdView, you can get in touch with AlgoValue directly here.

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