Company Evaluation Techniques in Startups

Company evaluation techniques in startups involve financial analysts. It plays an important role in the growth and success of a startup. Financial support is essential for this. Company evaluation techniques ensure that investor and customer expectations are met with the growth of the company. As a result of the development of unique technologies and ideas, company evaluation is required to bring new services/products to the market. All financing to be provided for startups is an important factor in the formation of company valuation. The following company evaluation techniques guide the development of startups.

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6 Company Evaluation Techniques for Startups

Company evaluation techniques can be used to ensure that the venture develops and operates in the long term. We can list the 6 company evaluation techniques that play a role in the development of enterprises as follows:

The Berkus Approach

It is a technique developed by Dave Berkus, an American angel investor and venture capitalist. This technique;

The Berkus Approach is also called the Development Phase Evaluation Approach and the Phase Development Method.

Discounted Cash Flow Approach

The Discounted Cash Flow Approach (DCF) technique focuses on how a venture will generate cash flows in the future. It quantifies the cash flow values estimated in advance. Investing in new entrants in the entrepreneurship sector is very risky. Therefore, the discounted cash flow approach is applied for new startups.

Market Multiple Approach

It is among the most widely used company evaluation techniques. The market multiple approach prioritizes recent acquisitions in the market. The base multiplier is determined in line with the last acquisition value. Subsequently, the underlying market is subjected to valuation based on multiple use.

Recurring Cost Approach

The recurring cost approach is based on the initiation and development of products, especially physical asset purchases. This technique includes all costs of startups.

Future Valuation Multiple Approach

It refers to investors' forecasts of future return on investment. Through the multiple approach to future valuation, investors evaluate ventures as follows;

Risk Factor Aggregation Approach

The risk factor aggregation approach, which is among the company evaluation techniques in startups, evaluates startups. It is a venture valuation that quantitatively takes into account all business-related risks that will affect the return on investment. The risk factor aggregation method is used to calculate how much capital is required for startups to develop and grow. Both the upside and downside of the business risks of different new ventures to be developed are considered. The company is evaluated according to the impact of the risk. Taking all risks into account, a "risk factor sum" is applied as part of the initial estimated value of the ventures. After the risk factor summation, the final value of the ventures is determined. Risk factor summation approach;