Some say it’s just ten times the annual revenue. But Figma got acquired for $20 billion when its revenue was $400 million. So here’s how to create a startup business valuation that is anywhere close to accurate and the cost of it.
We’ll discuss the most known methods for pre-revenue and post-revenue startups. We even have a small valuation tool in our startup somewhere. I’ll find it and link it to the end of the article.
Let’s dig in!
How much does it cost to create a startup valuation?
This varies by a big margin. Some freelancers could charge $50 for a business valuation, while others could easily charge $5,000 for the same thing. This is vital, though, because when you have an investor ready to invest, you want to showcase that you are accurate in terms of your business valuation. So you might end up paying that $5,000 freelancer.
However, the results might still be inadequate for the investor. Business valuations are tricky, as I mentioned at the beginning of this article. Figma was acquired by a number most wall street analysts would’ve not predicted.
So, in terms of cost, you should not spare any if it’s a critical moment in your startup, especially if your investor already knows a startup valuation expert. But in this case, I’d advise you to hire another as an additional external consultant.
Freelancer costs and whereabouts.
Alright, so freelancers who create business valuations are everywhere online. However, good ones who actually produce accurate valuations are not. So if you’re looking for a freelancer to aid you in such a business valuation, here are my recommendations:
- Your investor’s financial expert: Don’t assume that the investor wants to pay a low price. Hence, they’d send a financial expert for that reason. You are not obliged to sell your company or get an investment based on their financial expert. But if their financial expert and yours meet somewhere in the middle, then you’ve got yourself a true representation of your business valuation that will probably be agreed on by all parties.
- Some Albusi Business consultants: There are freelancers here that could create a business valuation document for around $1,000. This is mainly because this platform is fairly novel.
- A financial modeler on Upwork or Fiverr: Other freelancing websites like those have financial modelers that could very much do the job. Yet, for those, I advise you to do the following:
- Check the experiences of those freelancers.
- Talk with them a lot in order to explain your company quite well.
- You’ll find freelancers’ costs to be as cheap as $100 and as expensive as $10,000 on those platforms.
DIY – How to create your business valuation.
Let’s say you take a different route: you decide to value your business yourself. In that case, there are many ways you could do that. The first and most important question is, are you pre-revenue or post-revenue?
When a business is making money and is post-revenue, it’s much easier to create a business valuation sheet. Simply put, if you’re selling flowers for $5 million per year, and the market is growing with a CAGR of 15%, then you could valuate this.
However, if you’re pre-revenue and telling the investor that you have the next Facebook, you can’t put a price tag on that. Nonetheless, there’s a business valuation method I would recommend for this option as well.
For the first option, I recommend the most common method, which is the DCF valuation (discounted cash flow); you can research this online and find the most suitable template to value your business accordingly. If you want a template for this particular method, do let me know in the comments.
Secondly, if you’re pre-revenue, you could value your company based on the strength of your team and product compared to a competitor. I’ve added a template at the end of this article for this reason. It’s called the scorecard valuation method.
You need to be aware that there are many other ways to value your business. As long as you and your investor are in agreement, then choose the one you like.
Why create a business valuation?
In most cases, startups don’t need a business valuation. They need to focus on building and growing their product. Don’t get me wrong. Eventually, they’ll need to value their business. However, it’s only at a certain stage when it’s a critical document. For example, I mentioned before that this document or analysis is crucial when a startup is raising investment or getting acquired.
When the question, “how much should I pay for your company, or a share of it?” is asked is when you know that creating a business valuation is the right time.
However, doing this pre-revenue or from the start of ideation is what I call toxic overplanning. Stick to growing your company and get to know more about a business valuation cost when the time is right.
Startup Valuation Template
Alright, so for a scorecard business valuation, here is a template that you could use. You’ll need to click on the button below, then “File” and “Make a copy.”
There are always thousands of variables to be considered when valuing your company. Try to not forget a single one of them.
Best of luck!
Meet The Author Of This Article
I’m Al Anany, the founder and CEO of Albusi.
The moment you’re making decent revenue is the moment that you should immediately check your startup valuation. Never sell when it’s too early. I went through with this advice with Albusi when I was offered around $50k at a very early stage.