Startup valuation - DCF is the right way to go? Try using a framework instead
I was asked recently for a startup valuations. First thing that came to my mind was Discounted Cashflow (DCF) of course. While i was going through the numbers i started questioning whether or not this is the right way for a fair valuation. Too many assumption i had to put in there to make number runs....
So maybe cashflow is not really relevant in startup valuations, because startup are usually acquired based on they technology, or competitive advantage, established user base and other relevant factors, but not cashflow.
So probably a simple framework, just to have an idea of the ranges, might get closer to reality other that complex calculations:
- Pre-seed: Product under development or prototipe, no user base: Valuation 0.5M — 1.5M
- Seed phase: Market Product, but no traction yet: 1.5M-3M
- Series A: Product with some traction, active users and provable retention. 3M — 6M
- From here on DCF become useful
What do you think? would be this the right way to go?
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