Golf Balls Matters2

THE SCORECARD VALUATION METHOD

START-UP VALUATION

Have you heard about the Scorecard Valuation Method? It is a way of determining the value of a startup and can be seen as particularly useful by pre-seed and seed-stage investors. In this blog, we will describe the methodology, and explain how you can make a valuation calculation…

When offering personal capital for an equity share in a start-up, angel investors would usually put up anything from around £20,000 to £100,000. The valuation is the result of talks between the group of angel investors, and the entrepreneur, and so as an investor, and as a founder, it helps to have your own method of ascertaining the valuation.

Sometimes it feels too difficult to come to a valuation (and probably a SAFE/ASA or other methods to defer this step to a later stage are the best choice for you) but there is a relatively simple way to help you come up with a value for your start up: the Scorecard method.

SCORECARD VALUATION METHODOLOGY

The method is centred around the comparison with similar early-stage startup ventures, adjusting for the median valuation of companies which have been funded recently in the same geographical location and sector, in order to decide a pre-money valuation of the company (it is key that a comparison must be made between companies at a similar development stage).

After gathering this local and sector-specific data you are left with an average pre-money valuation: now it’s time to weigh the most important aspects that make your venture unique and adjust accordingly.

WEIGHING UP ALL FACTORS

A key stage in your research is assigning values to the different aspects that make up your company. As part of the Scorecard Valuation Method you consider and assign values for factors such as:

  • management team strength (from 0% to 30%); 
  • product and technology involved (from 0% to 15%); 
  • competitive environment (from 0% to 10%); 
  • market opportunity size (from 0% to 25%); 
  • existing sales or marketing partnerships (from 0% to 10%); 
  • need for additional investment and other considerations (from 0% to 10%).

How important is the experience of the management team? Choose between 0% and 30%. How much is technology important for your business (and for the benchmark ventures you are considering)? Rate this on a scale between 0% and 15%, and so on…

Golf Balls Matters2

MAKING A CALCULATION

Once you have entered and added up data related to all of these factors – stated as percentages – it’s time to compare your company to the others:

How much stronger is your team, your product, your partnerships?

If you believe they are average, assign a value of 100%; or more/less than that according to how much stronger/weaker your situation is. For example, the strength of sales or marketing partnerships might be 150% compared to the similar startup you had identified, but product or technology might be 80%. 

Now you have two percentages: the market percentage (0% to 30%, 0% t0 10%, etc) and the percentage you have assigned to your company (+100%). Multiply the two percentages and you will have a weighted value for each single key aspect of your venture.

Sum up the percentages associated with each factor and you will have a number to identify the strength of your company (more than 100% you are doing better than the market; less than 100% and you are doing worse than your average competitor).

Now multiply this percentage by the average valuation we’ve found earlier on and voilà: you have a very subjective, but still arguably sound valuation for your start-up.

ALTERNATIVES

You don’t feel it? Or simply you would like to root your valuation into more solid methods?

You can check out our articles on the Discounted Cash Flow Method, on SAFE/ASA alternatives or check out our partner Equidam

Have a look at a more general overview of what valuations are or get in touch with us for a professional valuation.

Golf Balls Matters2

SUBSCRIBE TO OUR NEWSLETTER
TO RECEIVE UPDATES ON NEW ARTICLES

ideas matters2

Ideas Are In The Air

Successful businesses are usually borne out of one simple thing: a fantastic idea. But ideas belong to everyone. When the ground is ready for new ideas...
maker marketer & manager

The Trinity of Management

WE ARE MAKERS, MARKETERS AND MANAGERS We believe that in order to deliver amazing results a company must excel at 3 things
Poker Matters2

9 Negotiating Principles for Investment Success

What are the underlying principles that you should be using in a negotiation? It doesn’t matter whether you’re the one looking to make the investments or the business looking to attract investors…
Equidam Logo Matters2

Valuations Made Easy

We are happy to announce that we’ve partnered with Equidam: an online platform for startup valuation that enables entrepreneurs to understand their valuation, transparently discuss it, and close fair deals.
Kandisky Matters2

Getting To Philosophy

Here is an experiment that you can conduct, right now. Open any Wikipedia page, on any topic of your choosing. Click on the first hyperlink in the main text of the article...
Manifesto Matters2

What Really Matters

OUR MANIFESTO: The world advances thanks to the effort of single brave individuals that innovate starting from zero. All successful companies become institutions sooner or later, and loose the ability to change…
Measure Matters2

KPIs

It is generally agreed that four to ten measurements may be suitable for the majority of companies, but the number and type of key performance indicators used may change depending on the…

SUBSCRIBE TO OUR NEWSLETTER
TO RECEIVE UPDATES ON NEW ARTICLES

Valuation

How to value my company? Sure, you want to…