- Persuade & Raise
- Posts
- Can you defend your valuation?
In partnership with
Always be able to defend your valuation.
Read time 2.0 minutes.
Most founders don’t know how to determine a valuation and tend to simply select a number based on dilution or what they feel is a fair price to offer. The truth is, valuation isn’t wishful thinking, and it isn’t about “what you feel you’re worth.” It’s about what you can defend and justify to investors.
When it comes to investors, there are a few key things that they look for. These include the credibility of the team, your vision, execution capacity, how capital-intensive the business is and whether I can reach a VC-level exit.
What you should always have however is an accepted valuation framework in your back pocket so that you can use financials to justify your ask. Here are some of those frameworks:
The Common Valuation Frameworks
Berkus Method → Assigns value to team, product readiness, and market potential. Best for pre-revenue.
Scorecard Method → Benchmarks against similar startups on weighted factors like traction, market, and team.
Comparable Transactions → Based on acquisition data. Works best when there’s an active M&A market.
Cost-to-Recreate → Strips away the narrative and asks: “What would it cost to rebuild this business today?”
Discounted Cash Flow (DCF) → Classic finance model—predict future cash and discount it back. Useful, but only once you have stable revenue.
(There are more, but these are the ones most often applied in early- to growth-stage deals.)
Do you use valuation frameworks? |
Onwards and Upwards,
