Just some slides explaining how venture capitalists value your startup, as thought at Massachusetts Institute of Technology.

1. New venture valuation
The venture capital method
Floriano Bonfigli, floriano.bonfigli@gmail.com

2. New venture valuation
Earnings
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Post
money
Pre
money
Post
IPO
Pre
IPO
$5M x 20 = $100M
$5M: earnings after 5 years when company goes public, number coming from your business plan
20: value multipler for this kind of company when going public, number coming from the market
$100M: expected values of the company going public
0000
Step 1.

3. New venture valuation
Earnings
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Post
money
Pre
money
Post
IPO
Pre
IPO
$5M x 20 = $100M
$5M: earnings after 5 years when company goes public, number coming from your business plan
20: value multipler for this kind of company when going public, number coming from the market
$100M: expected values of the company going public
0000
$13.2M
IF
In 5 years value of the
company will be $100M
Then
Step 1.
Step 2. Now, the value of the company is
$13.2M (some financial math applied)

4. New venture valuation
Earnings
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Post
money
Pre
money
Post
IPO
Pre
IPO
$5M x 20 = $100M
$5M: earnings after 5 years when company goes public, number coming from your business plan
20: value multipler for this kind of company when going public, number coming from the market
$100M: expected values of the company going public
0000
$13.2M
IF
In 5 years value of the
company will be $100M
Then
Step 1.
Step 2.
Step 3.
Now, the value of the company is
$13.2M (some financial math applied)
IF Then
He will ask for $5M/$13.2M= 38%
of the company
The venture capital wants to
invest $5M

5. Reference
http://ocw.mit.edu/courses/sloan-school-of-
management/15-431-entrepreneurial-finance-
spring-2011/lecture-
notes/MIT15_431S11_lec01.pdf