Let’s Figure Out Your Startup’s Valuation
There are formulas and market multiples. Then there’s what someone is willing to pay.
Tell me what your startup is worth. I dare you.
There is no murkier exercise in business than figuring out the valuation of a company. This is especially true when the company is a startup.
You can do a search for how you might value your own company, you can even ask ChatGPT, and I’d be willing to bet that you’d be overwhelmed with valuation methods and formulas that base company value on everything from revenue to EBITDA to social media followers.
I did not make that last one up, but please don’t use it.
I’ve sold companies that had little to no revenue at sky-high multiples. I’ve also run into brick walls trying to get an acquirer to value my company more than prior year’s revenue. It can drive you to distraction. And it can also lead a founder to make big financial mistakes.
As you might imagine, the only person who can tell you what your company is actually worth is the person writing the check to buy your company.
But let’s figure out a better answer.
“I Would Love a Big Exit”
I got a great question from a founder whom I would already call successful. They’ve built a lot of automation, so they have a small team. They have valuable proprietary IP. They operate on a subscription model, so they know their CAC and LTV and can forecast growth relatively accurately.
They will generate $1.5 to $3 million this year on greater than 50 percent margins. They believe they can grow at least 50 percent year over year over the next three years. At that point, the founder, who has been doing this for a while, wants to sell.
One problem. Even though the company seems to be printing money, they don’t want to get lowballed on the multiple.
“I see so many variations from 4x being high to 8x being super, but then I see companies publicly trading at 40 to 80x, so it’s a little confusing. Everyone I ask has a very different answer. It seems like it’s just a crapshoot as to how strong the economy is, whether acquirers are in buying mode…