Valuing Pre-revenue Startups: Methods Used Globally

Abstract

Startups often get categorized based on their valuations and one of the most frequently heard categorizations for a start up is the term ‘Unicorn’. There are other categorizations based on valuations such as ‘Minicorn’, ‘Soonicorn’, ‘Decacorn’, and ‘Hectocorn’. Valuations tell what a company would be worth at a given time. In other words, a company’s valuation refers to its fair market value for an interested arm’s length party when no strategic considerations or potential synergies are considered. This is why the fair market value determined by using valuation methods may be very different from the actual purchase price paid by the arm’s length party. Valuation methods exist not only for established companies with revenues but also for prerevenue start ups. There is several valuation methods used globally in order to arrive at the stand-alone value of a pre-revenue start up and some of these are industry specific too.