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Valuation is an analysis highlighting the value range of your project. It defines a company’s value in a nutshell. It serves as a basis for all fundraising negotiations.
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6 weighted methods for a fair valuation!
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Thanks to a methodology adapted to projects and innovative companies, Estimeo’s valuation helps breaking down the asymmetry of information that can exist during a negotiation between a project and an investor. Raise funds faster and easier.
Discover our various weighted methods for a fair valuation!
The direct or dilutive declarative method takes into account the entrepreneur’s personal expectations and estimates regarding the value of his business during a capital increase financing transaction. This elementary method still has a low weight in the calculation of the final valuation, but nevertheless remains relevant. It incorporates into the final valuation the negotiating power of the entrepreneur on the value of his own business, which obviously cannot be ruled out.
The method of valuation by discounting free cash flow, represents one of the approaches most used in the financial valuation of companies. It is more relevant for startups that are already generating revenue, but have a proven methodological soundness in calculating the value of a business. The quality of the valuation by DCF will depend on the reliability and consistency of the startup’s business plan. This is why, in order to counterbalance the frequent over-optimism of entrepreneurs in their financial forecasts, the evaluation of DCFs by Estimeo always takes into account an alternative scenario combining an algorithmic generation with an expert human analysis in order to objectify the business plan. Based on the startup’s forecast financial flows, the valuation is calculated by adding the discounted free cash flow.
The VC method is a relevant valuation approach as soon as the startup supports some growth and presents a solid business history. It results from the combination of several parameters such as: financial data at time T of the startup, business plan forecasts, financial multiples, and Estimeo pillar scores obtained during the rating process. This method aims to imagine a future scenario of an investor’s capital exit within a defined time horizon and depending on the current level of maturity of the startup. A turnover is calculated over this horizon and is applied to a transactional multiple (linked to the sector and the business plan of the startup assessed). The amount obtained corresponds to the valuation of the company at the time of the exit. It must then be updated to deduce the current value of the startup.
The ScoreCard method, or “Bill Payne Method” after its theorist, is based on Estimeo’s pillar scoring. This method allows you to evaluate a startup by comparing it to similar companies. An initial valuation is calculated based on the value desired by the entrepreneur (direct declarative), market trends and the Estimeo database. This value is then algorithmically revised upwards or downwards depending on the relative performance of the startup evaluated compared to comparable startups from the Estimeo database. Thus, a startup with an above average score will be considered successful and will be awarded a premium. This is a sign of greater bargaining power than the usual scenario.
This method developed by Estimeo presents a logic that is not very different from the ScoreCard method but uses different calculation methods. A ceiling valuation and a floor valuation are set according to the maturity stage of the startup, which correspond to the minimum and maximum values that an investor is usually willing to pay for a startup at a given maturity stage. The valuation of the startup is then calculated by applying mathematical algorithm with exponential progression that compares the score obtained by the startup with a benchmark score depending on the maturity in question.
The Step-Up method is only suitable for very young companies (pre-seed and seed), and generates an incremental valuation linked to the presence of factors or the achievement of development stages of a startup that will come to strengthen the solidity of the project. These are as many factors evaluating the risk as they are factors evaluating the potential of the project. The total valuation generated cannot exceed 2.5 million, which is why it will be excluded in the case of valuation of an already more developed company.