Sep 29, 2020
Due Diligence

The Mathematically Correct Way of Calculating Early-Stage Startup Valuations: A Discussion with Gintas Vilkelis, PhD

GoingVC Team

We’re thrilled to bring you this in-depth discussion with Dr. Vilkelis centered around his paper, The Mathematically Correct Way of Calculating Early-Stage Startup Valuations. For more information on Dr. Vilkelis or to reach out directly, see below:

Gintas Vilkelis, PhD | +44 7878 494 772 |

From the author: The paper is 30 pages in total, but significant portions of it contain (1) convenient reference section about “how it’s being done now” (for those who are curious), and (2) the full mathematical derivation (for those who want to see it), which can be skipped or skimmed through quickly by those readers who aren’t particularly interested in those types of details.

Therefore, to optimize the reading process, it is suggested:

  • First, read the Executive Summary, which will give the most important parts and a good overview of the contents of the whole document.
  • Then, read How to extract the most value from reading this document section that will give suggestions which parts of the document (based on your “reader profile”) you should definitely read vs. which ones you can safely skip without missing out on what’s likely to be important to you.

If you’re a startup founder, you’ve no doubt at some point in your company’s history, whether it’s been in the dreaming stage, fundraising, or exiting, asked yourself, “how much is my company worth?” Venture Capitalists as well need to ask these questions when considering writing checks and managing portfolio risk.

For those who have gone through these exercises, especially with early-stage companies, setting valuations is often a combination of simple back-of-the-envelope calculations and peer comparisons. The problem with these methodologies is that they lack the rigor that’s necessary for both parties to better agree to the level of risk, and therefore valuation, of these companies.

Is there a better way to value early-stage startups that relies on more sound fundamentals of finance?

As a guide to this paper, we chatted with the author to better understand the key points made in his paper. If you’d like to jump right into the paper, go ahead and check it out below:

You can view the full paper here.

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