UNDERSTANDING

EQUIDAM VALUATION
Office: Contact:
C. de l’Almirall Cadarso 26, E-mail: info@equidam.com
46005 Valencia (ES)
WHAT IS EQUIDAM

Equidam is the leading provider North Europe

of startup valuation.
America

35435
47412
More than 140,000 startups and small Asia
13796
businesses in 90 countries use Equidam Middle East

to calculate, understand and negotiate 6620

Africa
their value. 5244
Latin America
5251
Oceania
6945

OUR MISSION
Bring transparency and objectivity to startup valuation, allowing founders and investors to
make better decisions and ultimately bring more innovation into the world.
Valuation shouldn't be a deal breaker.

EQUIDAM VALUATION REPORT

The purpose of the Equidam Valuation Report is to start a
fruitful and transparent negotiation process between the parties
involved. It shows the valuation of the company, its details, the
financial projections and all the parameters involved, so that
they can be easily discussed and, if necessary, adjusted on the
platform to change the valuation.

PARTNERS

© 2023 /// 1
 IN THIS DOCUMENT

METHODOLOGY

Equidam automates the complex calculations involved in Details about the methods and
all the formulas necessary to
valuation, allowing companies to seamlessly compute the
understand how the valuation
valuation on their own and learn its drivers.
is computed

DATA SOURCES

A grounded valuation depends on grounded The sources for each

parameter or default value
assumptions. This is why we curate the reliability of
provided by Equidam.
our data sources, as well as their specificity to the
company’s country and industry. You can check out
more information on our data sources at this link:
equidam.com/data-sources/

COMPUTATION VS
VALUATION ENGAGEMENT

Equidam does not engage in revising the input inserted Which values are dependent
on the user – so that they can
by the company to compute the valuation (financial
be discussed during the
projections, questionnaire, and possible adjustments to
negotiation and, if necessary,
the financial parameters). The resulting valuation and adjusted on Equidam to have
report, then, strictly depends on the reliability of the input an updated valuation.
inserted by the user.

Methodology compliant with

IPEV (International Private Equity Valuation) Guidelines

“As an angel investor, Equidam allows me to make more efficient investment

decisions. I no longer have to create financial models for every company I evaluate.“

Jeff Morris Jr.

DIRECTOR, PRODUCT MANAGER AT TINDER

© 2023 UNDERSTANDING EQUIDAM VALUATION /// 2

METHODS OVERVIEW
Introduction to the 5 valuation methods

Valuation guidelines encourage the use of several valuation methods as they analyse the
business value from different angles and result in a more comprehensive and accurate view.

FUTURE CASH FLOWS

Equidam chooses to use the 5
valuation methods listed below, DCF with Long Term Growth
which will be described in details in DCF with Multiple
the following pages. The standard and most traditional
methods according to which a company
is worth the cash that it’s going to
generate in the future.
Q U A L I TAT I V E A S P E C T S

Scorecard Method INVESTORS RETURNS

Checklist Method Venture Capital Method

Developed by renowned To take into account the
American business angels to required returns investors
value the elements that guarantee expect to earn when exiting
future success in pre-revenues, the startup in order to have a
early stages companies. profitable portfolio.

Final valuation: weighted average of the 5 methods

The final valuation is computed as the weighted average of the valuation methods.
The default weights are applied by Equidam according to the company’s development stage
indicated by the user as shown in the table below.

WEIGHT OF THE 5 METHODS: DEFAULT SETTINGS*

Why these weights

DCF WITH DCF DCF methods have more

SCORECARD CHECKLIST VC
MULTIPLE WITH LTG importance for companies with
financial track record.
IDEA STAGE 38 % 38 % 16 % 4% 4%
Younger companies with no
DEVELOPMENT track record have more
30 % 30 % 16 % 12 % 12 %
unreliable forecasts; for this
STARTUP STAGE 15 % 15 % 16 % 27 % 27 % reasons, qualitative methods
that are not based on
EXPANSION STAGE 6% 6% 16 % 36 % 36 % projections should be have a
larger weight than DCF.
GROWTH STAGE 0% 0% 20 % 40 % 40 %

MATURITY STAGE 0% 0% 0% 50 % 50 %
*Adjustable by the user

© 2023 UNDERSTANDING EQUIDAM VALUATION /// 3

 Q U A L I TAT I V E A S P E C T S

SCORECARD METHOD
Comparable, recent transactions are relevant in pricing a company

The main tenet of this method is that comparable transactions are relevant in pricing a
company. Originally developed in 2001 by American business angels, this method was
published in 2007 by the Kauffman Foundation and revised in 2011 by Bill Payne from Ohio
TechAngels. Equidam reviewed the score system and the information on which the scores
are attributed.

HOW IT WORKS

1 Determination of the average pre-money valuation of similar companies*, valuations based

on their geography.
*Adjustable by the user

DATA SOURCES OF AVERAGE VALUATIONS

Crunchbase database of angel, pre-seed and
seed funding rounds of the last 30 months

By country Updated biannually

2 Based to the user’s answers to the “Questionnaire” section on Equidam, the company
is assigned a score that indicates whether it performs better or worse than comparable
companies on 6 criteria.

CRITERIA WEIGHTS *

STRENGTH OF THE TEAM 30 %

SIZE OF THE OPPORTUNITY 25 %

COMPETITIVE ENVIRONMENT 10 %

STRENGTH & PROTECTION OF PRODUCT/SERVICE 15 %

STRATEGIC RELATIONSHIPS WITH PARTNERS 10 %

FUNDING REQUIRED 10 %

*Adjustable by the user

3 Based on these scores and their weights, the valuation will be adjusted upward or
downward.

© 2023 UNDERSTANDING EQUIDAM VALUATION /// 4

 Q U A L I TAT I V E A S P E C T S

CHECKLIST METHOD
Valuing intangible assets

The main tenet of this method is that intangible assets of early stage companies are the
foundation of their future success, thus valuable - just as tangible assets are for established
businesses.

Business Angel Investor Dave Berkus, who has participated in more than 140 early-stage deals,
proposed this method in 1996, and later extended it in 2016. Equidam reviewed the weights
system and the information on which the scores are attributed.

HOW IT WORKS

The Checklist method assumes a fixed maximum valuation based on the region and assigns
the company a score for each of the 5 criteria, based on the answers to the “Questionnaire”
section on Equidam. The weighted sum of the score of each criteria determines the pre-money
valuation.
SAMPLE MAX
CRITERIA WEIGHT
CASE SCORE VALUATION* VALUE

QUALITY OF THE CORE TEAM 30% 80% $8M 30%*80%*8M=1.92M

QUALITY OF THE IDEA 20% 65% $8M 20%* 65%*8M= 1.04M

PRODUCT ROLL-OUT AND IP PROTECTION 15% 40% $8M 15% * 40% * 8 M = 0.48 M

STRATEGIC RELATIONSHIPS 15% 50% $8M 15% * 50% * 8 M = 0.6 M

OPERATING STAGE 20% 50% $8M 20% * 50% * 8 M = 0.8 M

$ 4,840,000
Or, in relative terms,
PRE-MONEY VALUATION
(4840/8000) = 60.5%
of the total

*Adjustable by the user

DATA SOURCES OF MAXIMUM VALUATIONS

Crunchbase database of angel, pre-seed and seed funding rounds
of the last 30 months

By country Updated biannually

© 2023 UNDERSTANDING EQUIDAM VALUATION /// 5

 FUTURE CASH FLOWS

THE 2 DISCOUNTED CASH FLOW METHODS

These methods stem out of the widely applied Discounted Cash Flow, based on discounting
future cash flows for an array of risk factors, for which the formula is illustrated below. The
difference between the 2 DCF that Equidam uses lies on the computation of the Terminal
Value (TV), explained in the next page.

Y1 * SR Y2 * SR Yn * SR TV
+ + … + + *( 1 - ID )
(1 + DR )
1
(1 + DR )
2
(1 + DR )
n
(1 + DR )
n

n = Number of projected years

DISCOUNT RATE * SURVIVAL RATE *

The discount rate used is the Weighted Average Being the nature of private companies riskier than
Cost of Capital (WACC). Being the debt in the public one, Equidam applies a survival rate
private companies (when present) not tradable, discount to the estimated cash flows.
the Equidam system assumes that the WACC is
equal to the cost of Equity. The cost of Equity is Dara Sources:
then calculated with the CAPM formula, that is: Country-specific Central Bureau of Statistics (such
as Eurostat, SBA, etc.)
Risk free rate + β (Market Returns – risk free rate)

Data Sources: ILLIQUIDITY DISCOUNT

Risk free rate = The nominal interest rates of
10Y government securities of each country. The illiquidity discount is applied to take into
account the risk of being unable to resell the
β = indicates how the industry of the company stocks of the company due to the lack of a market
relates to the market in terms of risk. If the for private companies. It is computed by Equidam
industry is more volatile than the market, then based on research on private companies’ share
the risk but also the expected returns are higher, liquidity and it is updated annually.
and vice versa. Equidam uses a 4 factor beta
(Industry, number of employees, stage of the
company, profitability) according to researches
FREE CASH FLOWS TO EQUITY
published by NYU Professor Aswath
Damodaran.
OF THE RESPECTIVE YEAR

Market Risk Premium = determined according See page 9 for more information.
to the country where the company is based. It is
calculated on a biannual basis by Professor
Aswath Damodaran by subtracting the risk free
rate to the last 12 months returns of the stock *Adjustable by the user
market in the country.

© 2 023 UNDERSTANDING EQUIDAM VALUATION /// 6

 FUTURE CASH FLOWS

DCF WITH LONG TERM GROWTH

The DCF with long term growth method is one of the most widespread models to value
public companies. This method assumes that the company is going to survive and grow at a
steady and constant rate.

TERMINAL VALUE COMPUTATION Growth rate

Equidam applies a fixed range that

( Yn * SR ) *( 1+Growth rate ) spans from 0.1% to 2.5%, based on
the industry of belonging.

DR - Growth rate Why this growth rate

The growth rate assumes the company
Free cash flow to Equity of the final projected year will grow at that pace in perpetuity and it
can not be higher than the GDP growth
Survival Rate, see page 7
rate of a certain country, as this would
Discount Rate, see page 7 mean that the company will outpace the
country and eventually become bigger
n = Number of projected years than the country itself.

DCF WITH MULTIPLE

TERMINAL VALUE COMPUTATION

EBITDA of last Survival rate last

X Industry multiple* X
projected year projected year

*Adjustable by the user

DATA SOURCES:
Online database compiled and curated by Prof.
A. Damodaran, NYU Stern School of Business

By industry Updated annually

© 2023 UNDERSTANDING EQUIDAM VALUATION /// 7

 INVESTORS RETURNS

VENTURE CAPITAL METHOD

The venture capital method is a quick approach to the valuation of companies.

It estimates the exit value of the company at the end of the forecast horizon and ignores the
intermediate cash flows. The exit value is calculated by taking the EBITDA of the last
projected year and applying the EBITDA multiple. This value is then discounted at a high rate
to get the present value.

HOW IT WORKS

Potential exit value

(1 +
EBITDA of last Industry Capital Pre-money
X / Discount - =
projected year multiple * n Raised valuation
rate )

n = Number of projected years

*Adjustable by the user

DATA SOURCES:
Online database compiled and curated by Prof.
A. Damodaran, NYU Stern School of Business

By industry Updated annually

STAGE OF DEVELOPMENT DISCOUNT / REQUIRED ROI *

IDEA STAGE 135.93 % The annual discount accounts

for a high year- on-year Return
DEVELOPMENT STAGE 114.74 % on Investment (or ROI). They
are based on Equidam’s
STARTUP STAGE 89.12 %
research on VC expected return
EXPANSION STAGE 48.60 % multiples, timing, and dilution,
and are updated annually.
GROWTH STAGE 36.20 %

*Adjustable by the user

© 2023 UNDERSTANDING EQUIDAM VALUATION /// 8

DEFAULT VALUES IN FINANCIAL PROJECTIONS
EDITABLE
EQUIDAM DEFAULT SETTINGS (IF EMPTY – NO DEFAULT SET)
BY USER

REVENUES

COSTS OF GOODS SOLD

SALARIES

OTHER OPERATING COSTS

EBITDA REVENUES – COGS – SALARIES – OTHER OPERATING COSTS

- D&A Average % of revenues for public companies in the user’s industry

EBIT EBITDA – D&A

- INTEREST ON DEBT See description below

- TAXES Country standard corporate tax rate. Includes tax carry forward

NET PROFIT EBIT – INTEREST - TAXES

+ RECEIVABLES Average % of revenues for public companies in the user’s industry

+ INVENTORY Average % of revenues for public companies in the user’s industry

- PAYABLES Average % of revenues for public companies in the user’s industry

WORKING CAPITAL RECEIVABLES + INVENTORY - PAYABLES

-/+ CHANGE IN WC WORKING CAPITAL – WORKING CAPITAL PREVIOUS YEAR

+ D&A Average % of revenues for public companies in the user’s industry

- CAPITAL EXPENDITURE

DEBT AT THE END OF THE YEAR

+/- CHANGE IN OUTSTANDING DEBT Debt at the end of current year - Debt at the end of previous year

Net Profit -/+ Change in Working Capital + D&A - Capital Expenditure

FREE CASH FLOWS TO EQUITY
+/- Change in Outstanding Debt

FUNDRAISING PLAN

FREE CASH FLOWS Free Cash Flow to Equity + Fundraising Plan

DATA SOURCES: DEFAULT INTEREST COMPUTATION

Online database compiled Debt at the end of the year * 5% = standard interest
and curated by Prof. A. EBIT/standard interest = Coverage ratio
Damodaran, NYU Stern According to different values of coverage ratios, a spread is assigned to
School of Business compensate for the risk, as companies with low coverage ratios have a higher
risk of not being able to cover the debt payments with their earnings. The
spread of the company is then applied to the risk free rate - the interest of 10y
maturity ECB bonds - and results in the final interest percentage, indicated on
the report. The value that you see in the interest row is then:
Debt at the end of the year * final interest

© 2023 UNDERSTANDING EQUIDAM VALUATION /// 9

Valuation Delta™ Analysis
Valuation Delta™ is Equidam's Startup Valuation benchmarking engine, which allows you to
compare the key attributes of your company against a sample of similar companies.

FILTERING FOR BENCHMARKS

Industry: select the appropriate

industry for your company. This will be
the same as the industry you selected
for your valuation, and so the same
guidelines apply.

Stage: select the stage of development

you would like to compare against.
Ideally, this should reflect the stage of
development you have selected in the
Questionnaire section.
Geography: Select the region you are
comparing your startup against.
Depending on the sample size you may
either want to narrow the data down to
a country level, or expand it to look at
global results.

Valuation attributes
Valuation Delta™ allows you to compare your valuation against data from similar companies
across five different metrics:

Valuation Benchmark Recent Rounds Revenue Growth

Reference recent Compare your projected
Compare your valuation fundraising rounds from revenue growth to similar
against similar companies similar companies companies

EBITDA Margin Funding Budget

Compare how similar
Compare your company’s
startups plan to use the
profitability from operators
raised capital

© 2023 UNDERSTANDING EQUIDAM VALUATION /// 10

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