Benchmarking your startup valuation is essential. These include comparisons with companies similar to yours to understand your place relative to the market. Through these comparisons with comparable companies, you can set expectations, attract investors and determine growth strategies by giving you a realistic sense of what’s possible.

🔮 How to determine your valuation

Know your stage. If you’re pre-revenue but have a great team, market and product, weigh qualitative factors such as team strength, market potential and product uniqueness heavily. Post-revenue startups should be guided by financial metrics and growth projections.

Next, choose the right valuation method. 

Pre-revenue? Use the VC method. The Venture Capital (VC) method is the way to go. This approach links your valuation to investor assessments of projected returns to their capital.

Post-revenue? You can try comparable company analysis (CCA), using multiples like P/E or EV/EBITDA to compare similar companies, but without sizable revenue and profit you would normally opt for VC method as well. 

Determine which metrics are most relevant for your industry:

• SaaS companies often use annual recurring revenue (ARR) or monthly recurring revenue (MRR).

• E-commerce businesses might focus on gross merchandise value (GMV) or customer lifetime value (CLV).

• Marketplaces could emphasize gross transaction value (GTV) or take rate.

Use the gathered data to calculate relevant multiples:

• Revenue multiples (e.g., 5x ARR for SaaS companies)

• User or customer multiples (e.g., $100 per active user for social media startups)

• Gross profit multiples

Valuations can vary significantly by location:

• Silicon Valley startups often command higher valuations than similar companies in other regions.

• Consider cost-of-living adjustments when comparing startups in different areas.

🪬 Sources for valuation benchmarking

You’ll need solid data. Carta and PitchBook are your sources of baseline data on the startups’ valuation, funding rounds and market developments, as well as many other aspects of the industry. Statista, CB Insights, Crunchbase and some sources available through the TechCrunch and Yahoo Finance websites provide useful secondary datasets in this area. You may also want to review relevant reports published by the SBA and industry-specific associations for data specific to your space. 

Should you look at industry breakdowns? Absolutely! Industry breakdowns set contextual benchmarks. Some industries tend to command higher valuations than others as a function of the average growth rate, market size and perhaps the level of risk the investor perceives. Many tech startups trade on valuation metrics based on high growth, for example, while funding for some healthcare enterprises might be based more on a regulatory approval milestone and with industrial manufacturers, perhaps tangible assets and revenue stability.

🦀 Tips for pre-seed / pre-revenue valuation

If you’re pre-seed or pre-revenue, give an emphasis on the qualitative factors. You can highlight your team’s experience and competency; the size and potential of your target market; and any initial user growth, partnerships, or pilot projects. 

Remember that benchmarking is a starting point, not an exact science. Be prepared to justify your valuation with solid data and reasoning. As a rule of thumb, higher-risk discounts are more frequently applied to pre-seed valuations as they lack an established financial history. Remain open to negotiations and feedback from potential investors.

The startup landscape evolves rapidly. Reassess your valuation benchmarks every 6-12 months. Stay informed about funding trends and shifts in your industry.