Valuation Methods

Abstract

This chapter explains the role of valuation in the fundraising process. We first discuss the main challenges in the valuation of entrepreneurial companies. Next, we review several approaches to computing company value and discuss their advantages and limitations. We start with the Venture Capital method, which is widely used by investors, and with the Discounted Cash Flow method, which is the standard finance tool for valuation. Next, we review the 'relative valuation' method, which uses comparable companies, and we examine various approaches for modelling uncertainty. We conclude by discussing the merits of these alternative methods, and argue that valuation is ultimately a bargaining tool.