VC valuations development stage company

[AggroFish]

I'm hoping someone can chime in with some of your own ways and or suggestions as to how you would go about determining a pre money valuation for a company. Pre revenue, assume a decent amount of IP.

Projected earnings at exit x (what) multiplier, using a 40%-50% discount rate?

Any first hand experience in this or any analysts out there?

[Apoc]

Hey Aggro,

Not sure what perspective you want to take on this, but if you're on the entrepreneur side of the table and a VC is asking you for your valuation, then you should simply say "I don't know." VC's have way more experience judging valuation and almost every VC will value a company differently based on their own interests and expertise.

If you do provide a valuation, odds are good that you'll either be way lower that what the VC thinks, in which case they'll be happy to take more of the company than they thought they'd be able to if they do invest, or you'll be higher and they won't fund because they don't really want to negotiate on valuation. Either way kinda sucks for the entrepreneur, so far better to have them tell you. Then, get a bunch of VC's interested and choose the term sheet with the best deal for you and your company.

If you're on the VC side of the table, it depends a lot on the industry, revenue and margin projections, how important and supportable the IP is, what the VC had for lunch, strength of the team, comparable fundings in the sector, and about a zillion other things. Discounted cash flow is just one way, but it's way more art than science for pre-money valuation, I believe.

Hope that helps some...
Apoc

[El Diablo]

AF,

Art, not a science. Based almost solely on things like comps, scarcity, hotness of space, exec team, etc. Based almost zero on valuing earnings, etc.

I have experience on both sides of the table with dozens of companies that I've been involved in either getting funded, evaluating funding, or advising.

[Evan]

Also consider that the valuation is just one piece of the puzzle. Other factors like option pool, liquidation preferences and vesting schedules all affect what the real value of the company is (for both the founders and the funders).