What is the 5x Your Raise Startup Valuation Method?
The meta image for this post was created with DALL-E 2 as the result of using the prompt "A slow loris eating rice while sitting in the middle of the forest".
What is it?
The 5x Your Raise valuation method might be one of the simplest ones to understand, almost feels tongue-in-cheek, because it leaps over any quantitative or qualitative methods to evaluate the startup and bases itself on a simple assumption:
Most investors want to see the valuation for their money representing around 20%-25% of the post-money valuation
So for any particular investment, a potential VC/Angel investor is willing to make, using the 5x Your Raise estimates a post-money valuation of any startup at around 4-5 times the money they put in.
This feels too reductive, especially after having read about several other valuation methods that for better or for worse take into account factors such as risks, strengths, financial projections, etc... but it might be a good starting point to get a number quickly based on what one is willing to invest and use it as a baseline to compare with other valuation methods and see how far/close you get to it.
Say for example a VC is willing to make a $300K investment in a company they expect to provide great returns (5x more than 4x). By the simple calculation the final post-money valuation comes in at
$300K * 5 = $1.5M, thus leaving a pre-money valuation of
$1.5M - $300K = $1.2M. As simple as that.
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