How Startup Valuation Works – Measuring a Company’s Potential (Funders & Founders Article)

May 20, 2014

Here's a good overview of startup valuation with a GREAT infographic of the many variables to consider.


According to this article, there are 5 key factors to consider:


  1. Traction

  2. Reputation

  3. Revenues

  4. Distribution Channel

  5. Hotness of Industry


"Valuation matters to entrepreneurs because it determines the share of the company they have to give away to an investor in exchange for money.  At the early stage the value of the company is close to zero, but the valuation has to be a lot higher than that. Why? Let’s say you are looking for a seed investment of around $100, 000 in exchange for about 10% of your company. Typical deal. Your pre-money valuation will be $ 1 million. This however, does not mean that your company is worth $1 million now. You probably could not sell it for that amount. Valuation at the early stages is a lot about the growth potential, as opposed to the present value."



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