Establishing a price for investment with a VC is a difficult experience.  Part of the reason is that valuing high growth (high risk) companies requires a lot of judgment.  Valuation is an art, not a science, they used to tell us…

It is always helpful for a seller to understand how a buyer approaches a valuation.  Here is a post from Fred Wilson on the topic.

There are a lot of theoretical holes in the approach, as outlined, and a lot of debatable valuation issues, such as: the use of Enterprise Value; the appropriateness of EBITDA multiples applied to historical, current or future earnings; revenue multiples; and, the thereafter “exit” valuation.

Regardless, the approach is common in the VC world and, therefore, a good primer for entrepreneurs.

Posted by Scott Sinclair, Range Corporate Advisors

Range Corporate Advisors provides multidisciplinary solutions to medium and small business requiring transitional, transactional or management assistance.