How Do You Do a Valuation for Raising Startup Capital?
Here are a number of ways to come up with a valuation for the the purpose of raising your first round of outside financing. The thing to understand is that there isn’t any one way that everyone agrees on. In reality there are several different valuation methods. On top of that, everyone has their own unique spin on each one.
First things first, understand the meaning of the terms pre-money and post-money valuations. If your startup can justify a valuation of $5 million to investors before they invest, then that is its pre-money valuation. It’s the value the founders have been able to create on their own. If the company is seeking $5 million in startup capital and gets it, then its post-money valuation is the sum of the pre-money valuation plus the cash, or $10 million.
Let’s start off with this short video by a finance prof.