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I'm looking for a real world calculation for how much profit or projected profit we should expect a company to be making before we apply a valuation of X amount of money.

What is a realistic calculation? (i.e. Not a "Facebook" calculation!)

Thanks

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1 Answer

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You don't need to be making a profit to evaluate a company. Most startups get evaluated way before they make a profit. Typically, people use some general rules to gage a companies worth. These include:

  • 10x Money In: Usually, an investor wants at least 10 their money as a return
  • 3-5x Revenue: This can be discounted revenue over time as well.
  • 7x Profit: The profit one is a little tricker since profit can be increased at the expense of growth.

All of these models are for growth companies. A main line, brick and mortar type, where the market is mature or predictable, will have a vastly different model.

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Thanks, that sounds about right. Obviously not an exact science! – BombDefused Apr 2 '11 at 20:42
Not a all. The best thing to also do is compare to comparable companies just to see how close you are. – Jarie Bolander Apr 2 '11 at 20:48

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