What is valuation?
Whenever we consider making a purchase - even in retail - we usually take time to consider the price against its “fair value” (in our opinion). We might use a range of methods to work this out, such as referring to the price a year ago or by comparing to similar products on the market. Yet with startups, the business in question may be highly unique. Perhaps it is a software company (e.g. a SaaS startup) offering an exciting health app to a very niche customer base. Clearly, the startup is worth something - yet is it truly the same as what its founders claim? For angel investors, many valuation methods used for larger companies (e.g. the price-to-earnings ratio) are not available since there is little past data to refer to. Fortunately, there are at least 4 ways for startup investors to value different portfolio prospects.
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