Wise entrepreneurs and investors use multiple methodologies to establish the appropriate pre-money valuation for pre-revenue startup companies, because no single method is particularly effective at this early stage. Valuation at the time of investment, of course, is critical in determining the percentage of ownership that investors purchase from entrepreneurs in a round of investment. I plan to describe, in several posts, half-a-dozen such methods used to determine valuation at the time of investment. Best practice dictates that a weighted average of multiple methodologies be employed.
The Scorecard Method has become a popular method among angel investors for determining the pre-money valuation of pre-revenue, startup ventures. Here is a new article explaining this method. SCORECARD VALUATION METHODOLOGY: Establishing the Valuation of Pre-revenue, Start-up Companies
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