This section of the Help Center is an extended explanation of how Equidam valuation works. You can check a more visual and high level overview in our methodology document here.
With Equidam you compute the pre-money valuation of your company. It is the result of the weighted average of five different methods, introduced below. The use of several methods is a best practice in company valuation, as looking at the business from different perspectives results in a more comprehensive and reliable view. These methods are compliant with IPEV (International Private Equity Valuation) Guidelines.
Qualitative methods
The Qualitative methods are the Scorecard method and the Checklist method. Developed by renowned American business angels, they are used to evaluate companies through their non-quantitative traits, such as team experience, market competition and strategy, etc. These aspects are core components of a company's value. While original plans may change as unpredictable factors weigh in, these traits grant the startup has what it takes to succeed.
They are surveyed in the Questionnaire section of the platform.
VC method
The VC (Venture Capital) method – a widespread approach among professionals of private company valuation – adopts the point of view of the investors by assessing the required returns from an investment based on their portfolios: investments in early stage companies are riskier compared to ones in established companies. Thus, it determines the valuation as the present value of what investors expect to earn when exiting the startup.
DCF methods
The DCF (Discounted Cash Flow) methods are the standard and most recognized methods for evaluating private and public companies, grounded in the principle that a company is worth the cash that it is going to generate in the future.
They make extensive use of a company’s financial projections reported in the Financials section of the platform.
Equidam uses two variations of the DCF: DCF with LTG and DCF with multiple.
Weights
All methods contribute to the valuation, each to different degrees. These are determined according to the following principles:
Qualitative information is more important in early stage companies, where performance uncertainty is extremely high, so qualitative methods are weighted in more
The investors' view is equally important across all stages, so the weight of the VC method does not change
Quantitative information is more reliable in later stages, when a company already has a proven financial track record. Therefore, it is possible to use the DCF methods more extensively as projected results get founded in past performance.