The creator of the method is Dave Berkus, one of the most prominent Californian angel investors, with a track record of nearly 200 rounds participated. The method treats qualitative traits as intangible building blocks, as they sum up to the assumed maximum pre-money valuation.

The process unfolds in three steps:

  • An assumed maximum pre-money valuation a startup can obtain is computed over a set of comparable market transactions (outliers excluded)
  • This maximum valuation is split in the method’s five criteria. A startup obtains portions of these maximum criteria valuations according to how close its qualitative traits are to the most desirable ones
  • The portions – representing the criteria valuations – are summed to make up for the pre-money valuation

Criteria and weights

The following table reports the criteria used and their weights on the overall valuation.

How to determine the valuations of the criteria

Through the answers in the Questionnaire tab of the platform, Equidam gathers information on the qualitative traits of the company and compares them with the characteristics the method assumes to be most desired by investors.

Traits are given percentage scores, whose sum per criterion ranges from 0% (farthest to the most desirable situation) to 100% (closest). The maximum value of a criterion multiplied with this percentage yields the valuation of the criterion.

What follows is a short description of the criteria and the related qualitative traits:

Quality of the core team investigates skills and commitment of the founders and the first non-founding employees. It analyzes:

  • Average age of the founders
  • Presence in the team of serial, successful entrepreneurs
  • Time commitment of the founders
  • Team spirit and comradeship
  • Years of industry experience of the core team
  • Business and managerial background of the core team
  • Technical skills of the core team

Quality of the idea relates the customers’ reactions to the product with the competitive environment where a startup operates. It analyzes:

  • Validation of the demand for the product/service
  • Feedback received by early adopters/industry experts
  • Level of competition in the market
  • Competitive advantage over other products/services
  • Geographical scope of the business
  • Threat of international competition
  • Degree of loyalty of customers

Product roll-out and IP protection examines how advanced is the development stage of the product/service and its IP (Intellectual Property) protection. It analyzes:

  • Stage of the product/service roll-out
  • Type of IP protection applicable
  • IP protection in place (if any)

Strategic relationships investigates how broad and active the network a startup can rely on is. It analyzes:

  • Presence of an advisory board and number of advisors
  • Presence and type of current shareholders
  • Relationship with legal counselors
  • Strength of the relationships with key strategic partners

Operating stage focuses on how developed and financially stable the startup is. It analyzes:

  • Stage of development
  • Current profitability

Example

Pedro is a Spain-based startup, active in the scooter rental market. The maximum valuation for Spanish companies is EUR 4.5M.
After filling out the questionnaire, the valuations of the criteria are the following:

  • EUR 4.5M * 30% * 58% = EUR 783K for Quality of the core team
  • EUR 4.5M * 30% = EUR 1.35M is the maximum valuation of the criterion
  • 58% is the sum of the trait scores for the criterion. It derives from an all over-45 team (4.67%), in which at least one person already exited successfully a project (17.33%), the majority intends to stay involved in other occupations (0%), all have known and worked with each other for more than 5 years (9.33%), have – collectively –  many years of industry experience (13.33%), and have occupied top executive positions (13.33%). However, none in the team have relevant tech skills at the moment (0%). 4.67% + 17.33% + 0% + 9.33% + 13.33% +13.33% + 0% = 58%
  • EUR 4.5M * 20% *  40% = EUR 360K for Quality of the idea
  • EUR 4.5M * 15% *  60% = EUR 405K for Product roll-out and IP protection
  • EUR 4.5M * 15% *  80% = EUR 540K for Strategic relationships
  • EUR 4.5M * 20% *  30% = EUR 270K for Operating stage

The sum of the valuations of the criteria is 

EUR 783K + EUR 360K + ... + EUR 270K = EUR 2.36M,

this is Pedro’s pre-money valuation.

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