For a company that has less than $5 million in revenues, how would you valuate the company? DCF just seems weird to use because the chances of making correct assumptions/fcf projections just seems to be really low. Just from the top of my head, I was thinking of using Price to Revenue multiple of comparable public companies and then discounting it by a certain percentage (Maybe 20%?) since it's a private company. I feel that transaction comps would be next to impossible beacause comparable transactions of that size would not have information disclosed. I'm very new to companies in this stage so if anyone can help me out with valuation of early stage companies, it would be of great help. Thanks!
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impossible for early stage companies that are nowhere near maturity or have decent historicals. Maybe later can use it and get a terminal value with a trailing multiple
I'd say it's a revenue multiple. We are not valuing them based on margins (EBITDA), just what they can sell right now.
For Honest Tea, I know their Series A or B pre-money valuation was done on a formula to the tune of [ 7xbottle sales + 2.5x teabag sales + 750K value of factory they owned]= approx 15mm or something
It had elements of liquidation value (the plant they owned 33% of)
How would you value a start-up with NO revenues, something that is just coming out of the prototype stage if you weren't going to use a DCF based on a set of projections and an extremely high discount rate?
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It depends on the stage of the company. I work at an early stage vc fund and what we look at the hardest is management.
Have the managers had a past successful exit? Are they experts in the field their product is in? What kind of connections do they have to possible exit companies?
Not much quantification at all.
VC is more about seeing where the market is going and gut instinct rather than numbers.
Edit:
Another thing that is constantly stressed is "execution" of the business plan/company.
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