Startup Valuation

5 min read

By Kevin — CPA, MBA, CEO of IOL Inc.

Valuation determines how much of your company you give away for investment capital. Get it right, and you preserve ownership while getting the funding you need. Get it wrong, and you either scare away investors (too high) or give away too much of your company (too low).

The uncomfortable truth: early-stage valuation is more art than science. There's no single "correct" number. Instead, founders should use multiple methods and present a range to investors.

The 5 Valuation Methods

1. DCF (Discounted Cash Flow)

Project future cash flows and discount them back to present value. The discount rate reflects risk — early-stage startups use 25-50% because the risk of failure is high. Mature companies use 10-15%.

When to use: startups with predictable, recurring revenue. SaaS companies with 12+ months of data. Not useful for pre-revenue startups (you'd be discounting guesses).

2. Berkus Method

Assigns up to ₱500,000 for each of 5 risk factors: Sound Idea, Prototype, Quality Management, Strategic Relationships, and Product Rollout/Sales. Maximum valuation: ₱2.5 million.

When to use: pre-revenue startups. This method values the team and the idea, not financials. It's a quick way to anchor a conversation with early-stage angels.

3. Scorecard Method

Compare your startup against a regional median valuation using weighted factors: Management Team (30%), Market Size (25%), Product/Technology (15%), Competitive Environment (10%), Marketing Channels (10%), Need for Funding (5%), and Other (5%).

When to use: early-stage startups in markets with comparable deals. Requires knowing the median angel deal valuation in your region (₱10-15M for Philippine seed rounds).

4. VC Method

Work backwards from a target exit value. If a VC expects 10x return on a ₱10M investment, they need ₱100M at exit. If they expect 30% dilution in future rounds, they need to own ~14% now. So post-money = ₱10M / 14% = ~₱71M.

When to use: when talking to VCs. This is how they think — backwards from exit. You need defensible exit comparables (similar companies that were acquired or went public).

5. Revenue Multiple

Valuation = Annual Revenue x Industry Multiple. The multiple depends on your business model: SaaS companies get 5-10x due to recurring revenue and high margins. Marketplaces get 2-4x. E-commerce gets 1-3x. Service businesses get 1-2x.

When to use: revenue-stage startups. The multiple reflects your growth rate, gross margin, retention, and market size. High growth + high margin = higher multiple.

Philippine Context

Typical Philippine startup valuations by stage:

• Pre-seed: ₱2-5M (bootstrapping / friends & family)
• Seed: ₱5-20M (angel investors, accelerators)
• Series A: ₱50-150M (institutional VCs)
• Series B+: ₱200M+ (growth equity, regional VCs)

These are lower than Silicon Valley but align with SEA startup economics. Don't benchmark against US valuations — investors price based on local market opportunity and exit potential.

Kevin's Advice

No single method is "correct." Run all relevant methods, present a range, and be prepared to defend your assumptions. Investors will push back on the high end; you should have data ready.

The most common founder mistake: anchoring on a valuation number they want, then working backwards to justify it. Investors see through this immediately. Start with the data, not the desired outcome.