Valuation multiples reflect the growth potential and risk associated with startups. While it is common for practitioners to apply multiples from later-stage companies to earlier stages, arguing that higher potential offsets higher risk, this approach can be flawed. Classical valuation theory suggests that more established companies should have lower multiples due to reduced risk and growth potential. Therefore, applying these multiples to early-stage startups may not be appropriate.
Equidam’s Approach to Startup Valuation Multiples
To address this, we provide a set of benchmarks for multiples at different stages of company development, which are integrated into the Equidam dashboard. Here’s a detailed look at our chosen multiples for Q4 2023:
Company stage | Revenue multiples in Q4 2023 | Equidam stage proxy |
Seed | 13 to 53 | Equidam’s Startup Stage |
Series A | 12 to 25 | Equidam Expansion Stage |
Series B | 8 to 14 | Equidam Growth Stage |
Series C | 3 to 5 | Equidam Growth Stage and Revenue > 10Mln |
Series D | 6 to 8 | Not utilized on Equidam, at this stage, public or available company multiples are more useful |
Series E | 5 to 7 | Not utilized on Equidam, at this stage, public or available company multiples are more useful |
Note: These multiples will be updated as more recent data becomes available.
Data and research sources
Resources on early-stage multiples are often scarce and uncertain, primarily because the data is controlled by proprietary platforms that seldom share it. The multiples provided here are derived from an analysis by Michael Ho, primarily based on data published by Carta. This analysis offers a valuable reference point for understanding valuation multiples at different stages of a company’s growth.
What about multiples for pre-seed companies?
Early-stage company data is often scarce and unreliable, leading to the temptation to use public company multiples as proxies. However, using stage-specific multiples is essential for more accurate valuations. These benchmarks are derived from extensive analysis, including data from Carta, and provide a more tailored approach to valuing startups at different growth stages.
Equidam’s Use of Public Multiples for Valuation Calculations
While we use these stage-specific multiples for benchmarking, public multiples are often used for actual valuation calculations. Public company multiples are more reliable due to their larger, more stable nature and regular auditing, which ensures consistency and accuracy. They are widely available and updated regularly, making them a dependable choice for valuations.
To mitigate the stage mismatch, we apply public multiples to the furthest future year in a company’s projections, aligning the startup’s future state with the comparables. Our Advanced Multiples feature allows users to refine their search for multiples, providing access to a vast database of over 30,000 public companies.
Conclusion
Using appropriate valuation multiples is crucial for accurately assessing the value of startups at various stages. By providing these benchmarks, Equidam ensures that users have access to relevant and reliable data, enhancing the accuracy of their valuations.
For further details on our valuation methodologies, please refer to our resources on DCF methods,EBITDA multiples, and the VC method on our support center.