Enter the total annual revenue and the typical earnings multiple the type of companies list at to determine the startup valuation.
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Startup Valuation Formula
The following formula is used to calculate the value of a startup.
V = AR * LM
- Where V is teh startup valuation ($)
- AR is the average annual revenue for the past 12-months or past 24-month period
- LM is the listing multiple. This should be the average multiple of annual earnings that companies in the same field have listed at when going public over the previous 5 years.
What is the value of a startup?
Determining the actual value of a startup is extremely difficult. People have made a living off of being able to catch companies early, and people have lost all their money trying to do the same. The real answer is that it’s impossible to know the exact value of a startup, especially early on.
The formula that is provided above is for startups that have had a few years of consistent growth and are going to go public soon.
How to calculate a startup valuation?
- First, determine the average annual revenue for the past 12-month period.
For this example, the average annual revenue was $100,000,000.00.
- Next, determine the average listing multiple that companies in the same niche of listed at when going public over the last 5 years.
In this case, the company is in the tech sector, and listing multiples have averaged 30x their annual revenue.
- Finally, calculate the value of the startup.
Using the formula above, the startup valuation is calculated to be:
V = AR * LM
V = $100,000,000 * 30
V = $3,000,000,000 = $3 Billion