The VC (Venture Capital) method estimates the future valuation of a startup using EBITDA multiples from comparable publicly listed companies, then applies an expected annual rate of return for investors to calculate the current valuation through discounting. It is the most widely used method in fundraising because it relies on verifiable market data.
Free startup valuation toolVC (Venture Capital) Method
Estimate your startup's pre-money valuation using the Venture Capital method, also known as the stock market comparables method or the EBITDA multiples method. This tool gives you a rigorous and transparent methodological framework to prepare your fundraise.
How does the VC method work?
The VC method estimates the future valuation of your company (called the terminal value) using EBITDA multiples from comparable publicly listed companies, then applies an expected annual rate of return for investors to calculate the current valuation through discounting.
Publicly listed companies are not perfectly comparable to a startup, but they provide reliable orders of magnitude, based on market data and actual transactions. Stock market comparables reflect a minority valuation — which generally corresponds to the framework of a fundraise where the investor acquires a minority stake in the company.
The calculation follows three steps:
- Enter your projected EBITDA for the coming years of your business plan.
- Identify comparable companies and calculate the multiples from their market capitalization and EBITDA.
- Choose an attractive rate of return for your investors to discount the terminal value and obtain today's pre-money valuation.
Good to know
An investor always looks at how a founder justifies the choice of comparables. An unjustifiably high multiple is a red flag. Show that you understand your sector and that your valuation range is based on solid data.
Valuation calculator
1
Enter your company data
How to calculate your EBITDA?
To calculate your EBITDA, use your income statement. Take your net income and add back: depreciation and amortization, net financial expenses (in absolute value), and corporate income tax.
2
Comparable companies
Find comparable companies by analyzing competing products/services and identifying the publicly listed companies behind them. You can use financial data sites to find EBITDA and market capitalization data.
| Company | EBITDA N | EBITDA N+1 | Market Cap | Multiple N | Multiple N+1 | |
|---|---|---|---|---|---|---|
| — | — | |||||
| — | — | |||||
| — | — |
Tip
Positioning your multiple at the upper end of the range will need to be justified. Take a coherent and reasonable approach.
3
Rate of return and current valuation
Now that the valuation at the end of your business plan is set, you need to consider the annual rate of return you want to offer your investors, which will be used to discount today’s valuation.
%
Holding period:3 years(2 + 1)
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Discover SeedAngels →Frequently asked questions — Startup valuation
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is calculated from your income statement: take your net income, then add back depreciation and amortization, net financial expenses (in absolute value), and corporate income tax. EBITDA reflects the operational performance of your business before financial and accounting items.
Publicly listed companies are not perfectly comparable to a startup, but they provide public and verifiable market data (market capitalization, EBITDA). Stock market multiples reflect a minority valuation, which corresponds to the framework of a fundraise where the investor acquires a minority stake in the company. This is the most objective data source for estimating sector multiples.
The expected annual rate of return for a Business Angel typically ranges between 30% and 100% depending on the startup's stage of maturity and risk level. An early-stage project with little traction warrants a high rate (80-100%) to compensate for risk. A project with recurring revenues and proven traction can offer a more moderate rate (30-50%). The default value of 80% in our tool is a good starting point for an early-stage startup.
The pre-money valuation is the value of your company before the injection of capital by investors. The post-money valuation is the pre-money valuation plus the amount raised. For example, if your pre-money valuation is €1M and you raise €250K, the post-money valuation is €1.25M, and the investor holds 20% of the equity (€250K / €1.25M). The tool above calculates the pre-money valuation.
SeedAngels is a platform that helps you prepare your fundraising materials: pitch deck, business plan, financial projections, and cap table. The application includes an advanced valuation tool with pre-calculated sector multiples and a dilution simulator. Create your free account to access all our tools.