Good morning, fellow founder! 👋

Welcome to another edition of FounderForge. Your Europe-focused startup digest - just because we do things a little differently here! 🇺🇸 👀

If you missed our last issue, you can still read it at the link below! 👇

Today's topics are all money (again):

• Valuation Methods ♾️

• How to Calculate Your Valuation 📈 

📊 Data Dive: Multiples

Know your worth. 🫰

If you are an employee, this is the most valuable thing you can do.

Know your value - don't undersell (or oversell?) yourself.

Valuation via Revenue Multiplies

The safest way to value your business is to use multiples.

You can use different multiples depending on your industry and the growth of your business.

Typically, hardware or asset-heavy industries tend to have lower multiples than recurring revenue (SaaS) software companies. 📉

Here is a good example of multiples for different industries. 👇

Normally, these multiples are applied to your company's EBITDA.

As a start-up, sometimes you do not want to have earnings or you cannot have earnings.

So you can also calculate growth-adjusted earnings and then use those multiples. #communityadjustedebita 🏢

Economic influence on multiples

Not only do multiples vary from industry to industry, but they're also closely tied to the current state of the economy.

This makes sense, as multiples tend to be higher in cycles with more VC money and lower in times of crisis.

The great thing: as you can see in the chart from Clouded Judgement, the crisis is probably over and multiples are at pre-covid highs. 😷

🛠 Founder's Toolkit: How to Calculate Your Valuation

Enough of the theoretical part of multiples.

In the end, you probably don't need to delve too deeply into theoretical approaches to calculating your valuation.

There is simply a more practical approach that works for 95% of use cases and funding rounds.

But it only works if your startup has grown to a comparable size.

First Round Valuation

If you're not yet comparable, we still got it. Before you have any revenue or funding, it's all about the founding team and the idea.

It's not about how much you want to raise, it's about how much you can raise.

Fortunately, Antler has released a great piece of content for this: The Founder Pedigree Valuation Method. 👇

The Crunchbase Method

The easiest and fastest way to get a fair valuation = Simply compare yourself to other companies

1. Crunchbase research 🎩 

Look up 5-7 competitors in your area at the same stage and map them with all the information you have.

Important is:

• Funding Size

• Revenue

• Valuation

If the valuation is not public, you can just multiply the funding by 5. In most pre-seed to Series B rounds, shareholders will dilute at around 20%. 💎

2. Come up with your valuation

Based on the data you have now and the equity you want to give away in a given round, you can come up with a comfortable and comparable valuation.

Does it work with every startup? 🤔 

Unfortunately, not every space is comparable. Either it's something like deep tech and you have very long periods of R&D and stealth, or it's just a space that's not crowded enough to compare well.

Either way, you can only use the theoretical approaches introduced in the first part of the newsletter.

🔗 Founder's Library: Curated Resources

A collection of random reads that the FounderForge team enjoyed.

• 2024: When to IPO in the Age of Uncertainty by Meritech

• Scoop: Andreessen Horowitz Closes $7.2 Billion For New Funds by Axios

• No More Freemium at Airtable by Nicolás Cerdeira

• How To Get The Good Intros by Austen Allred

• How to Raise Pre-Seed (and Seed) Financing for Your Startup by Ben Yoskovitz

😂 Meme of the Fortnight

You won’t need a valuation if you don’t bring in funding … 🤯 

🤔 Your Thoughts on Today's Edition

• 🔥 It was great!

• 😒 Meh - it was okay.

• 👎 Not interesting to me.

That's all for now!

If you find this newsletter valuable, share it with a friend!

Cheers,
The Founders Blacksmith 👋

Issue #17 | 02. May 2024