Valuation is one of the most misunderstood concepts for founders. It is both a financial calculation and a market-driven negotiation. Investors look for evidence—revenue quality, market position, operational strength—not just ambition.
1. Key Valuation Methods
- Comparable Company Analysis (CCA): Benchmarking peers in the industry.
- Discounted Cash Flow (DCF): Evaluating future cash flow potential.
- Precedent Transactions: Using data from similar deals.
- Revenue/EBITDA Multiples: Common for mid-market and profitable firms.
2. What Drives a Higher Valuation?
- Recurring revenue
- Strong gross margins
- Well-managed costs
- Customer retention rates
- IP/technology advantages
- Predictable cash flows
3. Narrative Matters
Beyond numbers, valuation depends on how effectively the founder articulates:
- The problem
- The solution
- Market differentiation
- Competitor advantages
- Long-term defensibility
4. Preparing for Valuation Discussions
Founders should prepare:
- Audited or clean financial statements
- A realistic growth plan
- Cohort analysis
- Sensitivity modeling
- Clear use of funds
5. The Role of Advisors
Advisors help founders avoid overvaluation, which can damage future funding or exit opportunities.