Some time ago we mentioned the differences that exist when it comes to valuing a startup compared to a traditional company. This is because, in most opportunities, traditional methodologies are not able to capture the growth potential of these emerging companies, traditional methodologies are not able to capture the growth potential of these emerging companies.

This is why, in this edition, we will summarize five methods of startup valuation, considering different stages and business models, which are key characteristics that determine the methodology to be used.

1. Comparative valuation method: is based on comparing the startup with other similar companies that have been recently valued. It is widely used in the case of startups that are at an early stage, when there is not enough financial information available to make an accurate valuation.
2. Discounted cash flow method: is used by projecting the startup's future cash flows and adjusting them using a discount rate to obtain a present value. This methodology is suitable for startups with a proven and stable business model, which are already generating positive cash flows.
3. Net asset value method: this method is based on calculating the value of the startup's assets (e.g. intellectual property, patents, equipment, etc.) and subtracting the value of debts and liabilities. It is generally used for startups that have a large amount of tangible and intangible assets, such as biotechnology or advanced technology startups.
4. Revenue multiple method: this is a simple model based on multiplying the startup's annual revenue by a given multiple (e.g., five times revenue) to obtain a market value. It is often used for startups with an established business model and that generate regular revenues.
5. Contingent value method: this methodology is based on calculating the present value of future payments that the startup could receive, adjusted for the probability of certain conditions being met, such as the successful commercialization of a product or service. This method is suitable for startups that have a unique technological innovation and high uncertainty as to their commercial success.

Choosing the right startup valuation method will depend mainly on the company's business model and stage of development, on the company's business model and its stage of development. It is important to remember that startup valuation is not an exact science, due to the risk inherent to these companies, and that it is necessary to consider several factors, such as the management team, the potential market and the competition, among others.

By understanding these five valuation methods, you can have a better understanding of the valuation of a startup at the time it is raising a round of funding, and thus make more informed decisions when investing in them.

Tomás Latorre - Team Fynsa AGF