Written by Tom Cannon, Portfolio Manager at Seedrs, sharing his expertise and insight into startup valuation.
Are you looking to get an understanding of how much your early-stage business might be worth? This calculator will take you through the steps an Angel Investor might take to estimate a valuation. Before you start, here are a few things to note:
- This calculator is designed for early-stage and pre-revenue businesses.
- Be honest with your answers. Put yourself in an angel investor’s shoes and ask yourself how would they answer the questions about your business.
- This is intended to provide a broad estimate, and should not be taken for a precise calculation. When doing business valuations, it is recommended to use around 3 different valuation methods.
Some Considerations When Looking at Valuation:
- Market Forces: One of the largest determinants of a startup’s value is the market forces of the industry in which it operates. When an investor is deciding whether to invest, they generally gauge what the likely exit size will be for a company of its type and industry, then judge how much equity is required to reach a return on investment (“ROI”) goal. There are certain “hot” industries out there (e.g. fintech / sustainability / AI / healthtech), which can command a higher valuation than another company at the same stage in a different industry. Conversely, if operating in a space where the market for your industry is depressed and the outlook stagnant, the amount an investor is willing to pay for the company’s equity is going to be substantially reduced in spite of any past or present successes.
- The investor perspective and entrepreneur trade off: The fundamental strategy to make money as an angel investor is to purchase an ownership share in a company when it is still young, unproven and inexpensive, and to sell that share at a later date when the company has achieved its vision and demonstrated its increased worth. An investor will decide how much a company is worth on the basis of many factors, including how far the business has come (business plan / MVP, profitable, in-between) and how far it can go. On the other hand, an entrepreneur you need to secure enough investment to grow your business and hit your key milestones, whilst maintaining a high enough equity stake to keep you incentivised.