Even though startup valuation is a complicated topic, it boils down to two general approaches – a … [+] top-down and a bottom-up approach. Here’s how innovation plays an important role.
Even though startup valuation is a complicated topic, it boils down to two general approaches – a top-down and a bottom-up approach.
With a top-down approach, you can argue for a valuation derived from addressable market size and expected market penetration. Or alternatively, you can see the pre/post-money valuation of other startups in your industry and adjust your own valuation based on a direct comparison with them. For example, Y Combinator offers $125k pre-seed capital for 7%, which suggests a $1.6M pre-money valuation. You can use this as a benchmark for your own valuation.
For startups with financial history, you can use a bottom-up approach. While you can use discounted cash flows (NPV) or other more…