Start-Ups and Cash Burn Analysis

lakeshow32's picture
Rank: Chimp | 10

I have a few questions related to the valuation/analysis of startups. I am rather green when it comes to startups and have only dealt with companies that are more established, so my questions may seem obvious to some with more transaction experience with this type of company.

(1) At a high level, do you value start-ups the same way you value a normal operating company? For instance, if you are a corporation looking to buy some startups, do you typically use a normal DCF model using projections for x amount of years?

(2) When it comes to burn rates, is this a datapoint that you look at on a monthly, quarterly, or yearly basis? If you were to make 5 year projections, would one typically look at the projected yearly burn rate too?

(3) When determining a terminal value of the business, do you calculate it using a perpetuity growth rate? Do you use an exit multiple off of EBITDA? Multiple of Revenue?

Any insight into the valuation of startups would be greatly appreciated. Thanks.

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Oct 14, 2009