THE CHECKLIST VALUATION METHOD
CALIFORNIAN ANGELS TO THE RESCUE
The creator of this method is David W. Berkus, one of the most prominent Californian angel investors and venture capitalists. The checklist method uses building blocks that sum up to a maximum pre-money valuation. This maximum is composed of 5 different criteria that are weighted differently according to their importance. The company is awarded portions of these maximum criteria valuations according to how close its qualitative traits are to the most desirable ones. These values are then compared to the benchmark valuation in the analysed market.
CHECKLIST VALUATION METHODOLOGY
The method compares early-stage startups within the same geographical market, taking as highest value the highest valuations in the market, with the exclusion of outliers and notable “crazy” exceptions.
After gathering this local data you are left with a maximum pre-money valuation and you will discount this valuation by the quality of the criteria assessed. In other words, it’s impossible to end up with a valuation higher than this maximum benchmark.
WEIGHTS OF EACH CRITERIA
Now it’s time to weigh the most important aspects that make your venture unique and adjust accordingly. A key stage in your research is assigning values to the different aspects that make up your company. As part of the Checklist Valuation Method, you consider and assign values for factors such as:
- Quality of the core team: 30%
- Quality of the idea: 20%
- Product roll-out and IP protection: 15%
- Strategic relationships: 15%
- Operating stage: 20%
How important is the experience of the management team? Choose between 0% and 30%. How much is the idea important for your business? Rate this on a scale between 0% and 20%, and so on… (alternatively use a system of scoring from 1 to 10, or 1% to 100% if you want to be more granular, and then multiply this by the weight of each criterion).
At Matters2, we assess the value of your company based on a qualitative questionnaire that we ask you to complete before our work begins. You can download the questionnaire here, and have a look at the kind of information we ask for.
CHECKLIST VS. SCORECARD
As you’ve probably noticed this method is very similar to the Scorecard Method… The main difference is that while the Scorecard Method uses the average startup valuation in a given area as a benchmark, the Checklist Method uses the maximum valuation.
Apart from this difference they also value similar skills in slightly different ways. In this last step, the difference is little, but enough to land on a slightly different valuation. Here you can compare the two:
Checklist Method
- Quality of the core team: 30%
- Quality of the idea: 20%
- Product roll-out and IP protection: 15%
- Strategic relationships: 15%
- Operating stage: 20%
Scorecard Method
- management team strength: up to 30%
- product and technology involved up to 15%
- competitive environment up to 10%
- market opportunity size up to 25%
- existing sales or marketing partnerships up to 10%
- need for additional investment and other considerations up to 10%
WHY DO I NEED ANOTHER QUALITATIVE METHOD?
Well, why wouldn’t you want it? After all, anything qualitative tends to be less defined and more fuzzy… In this case, two different methods help us reinforce the valuation we can infer from qualitative aspects: they value similar aspects differently and, if the result between the two methods is similar, give strength to the final result.
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THE CHECKLIST VALUATION METHOD
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