Determining your startup’s valuation during a financing is a tricky process. This startup valuation calculator is designed to simplify the process so that you can focus on what’s most important: running your business and closing your next fundraising round.
Enter any two values (for example, investment and investor’s equity) and the calculator will populate the rest of the values.
Startup Valuation: Explained. A Short Guide to Startup Investment
Savvy entrepreneurs are creating new business ventures, known as startups, every day. As the world changes, more venture capitalists (VCs) and other investors are choosing to look even at the smallest of startups to determine their value and scope of possibility for investment. This is great news for startups as there is more opportunity to grow quickly from an early stage. Understanding how to effectively calculate a startup valuation can better set you up for overall success within the industry, either as a startup owner or an investor. startup valuation calculator will help you for your calculations.
There are multiple terms you will need to become comfortable with when delving into startup valuation, beginning with the following:
What are Pre-Money and Post-Money Valuation?
Pre-money valuation is the calculated equity value of a business or asset prior to it receiving cash in the form of financing or investment. Post-money valuation, on the other hand, is the value of the business after this new cash, possibly from multiple sources, is added to the balance sheet, considerably increasing its value. The share price for a public corporation is not affected by either the pre or post-money equity value.
A standard formula for pre-money valuation is non-existent due to the calculation’s subjectiveness to a variety of factors. This figure can be calculated through the use of common valuation methods, such as discounted cash flow (DCF), which is the future forecast of a startup’s cash flowability. Post-money valuation is calculated simply by adding the cash received to the pre-money valuation.
Both of these valuation figures are important when calculating the value of a startup because, as a startup, having strong equity when seeking investment capital will put them at an advantage when negotiating how much cash to invest.
Once cash is added to a startup enterprise’s balance sheet, that post-valuation calculation could change that equity value dramatically, therefore having both calculations is crucial to understanding the overall value of the startup.
It’s important to point out here that both valuations calculate the equity value pre or post-money. It doesn’t necessarily or even often determine the overall value of the startup company itself. Equity is how much of the asset is owned by the startup itself. So, any equity owned by investors is kept separate from these valuations.
What is Investor Equity?
The percentage of ownership of a startup passed over to an investor in exchange for their “partnership” and cash is known as investor equity. Most of us have seen or heard of the popular TV shows where investors sit in comfy chairs while startups pitch their businesses. These investors will often offer a lump of cash in exchange for ownership into their company. This could be anywhere from up to 10% and more.
Oftentimes, the pre-cash value of a startup, including its ability to bring in its own profit already, will determine how much investor equity will be required.
The less risk involved, usually the less investor equity is asked, however, investors can be strategic and when they find a startup that they believe will become huge, they want to ensure they will make their investment back tenfold.
Whether you’re a startup business looking for answers to increase your chances of finding an investor or you’re an investor seeking to calculate the value of a startup to decipher whether they’re an optimistic brand to put your money, knowing the ins and outs, enough to at least get by at a networking event or investment pitch, of startup valuation can help secure your success now and long term.