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Raising Funds 101: How to Value your Singapore Startup for Investors

Raising Funds 101: How to Value your Singapore Startup for Investors

As a startup, you are most likely reliant on external investors to propel your business, perhaps in the form of angel investors, venture capitalists, or one of the many Singaporean Government grants and schemes. In order to make yourself a more attractive investment, it’s vital that you understand how to value your startup.

There are quite a few schools of thought on how to value your startup for investors, but in this quick guide, we’ll cover four main methods: The First Chicago Method, The Berkus Method, The Scorecard Method, and The Venture Capital Method. Let’s take a look at all four methods to see what suits your specific startup.

The First Chicago Method

Named after The First Chicago Bank, The First Chicago Method of valuing your startup is all about cash flow under various scenarios — normal case, worst case, and best case. These three scenarios are modeled when revenue might be dynamic or far from predictable.

Each scenario is seen through the lens of Discounted Cash Flow (DCF), where a percentage is assigned depending on the financial outlook for that scenario. The valuation of the startup is then calculated by the weighted average of those three scenarios.

The First Chicago Method is often used to value startups that do not have meaningful historic financial results but are in the early stages of generating legitimate revenue.

The Berkus Method

The Berkus Method is named after Californian Angel Investor Dave Berkus, who developed the method in the 1990s. It works by applying an estimated dollar value to five key business factors:

  1. Sound Idea (basic value)
  2. Prototype (reduces technology risk)
  3. Quality Management Team (reduces execution risk)
  4. Strategic Relationships (reduces market risk)
  5. Product Rollout or Sales (reduces production risk)

By using both qualitative and quantitative assessments, each factor can have a maximum of $500,000 assigned to it, and the startup’s worth is the sum of those six dollar valuations.

The Berkus Method is best suited to startups that are very young, and most likely pre-revenue. It is not suitable for startups that already have recurring revenue streams.

The Scorecard Method

Similar to the Berkus Method, but more involved, the Scorecard method of valuing your startup also lists key business factors and assigns each valuation.

The startup starts with the average valuation of similar companies in their fields, in this case, let’s say $1,000,000.

In the case of the Scorecard Method, there are six factors, but they are all given different weightings to reflect their importance in the valuation:

  1. Management team – weighting 30%
  2. Opportunity timing – weighting 20%
  3. Opportunity size – weighting 20%
  4. Product/service/technology – weighting 15%
  5. Competition/environment – weighting 5%
  6. Sales/partnerships/marketing – weighting 5%
  7. Other (hiring, buzz, etc.) – weighting 5%

The factors and weightings are up to the valuer, but will generally follow that categorization.

For each section, the startup is ranked against its competition. So for example, if it has a fantastic management team compared to the competition, it might get 120% for its management team. If their sales/partnerships/marketing is slightly weak compared to the competition, they might score 90%.

Finally, the weightings are multiplied by their scores. Those factors are then added up which gives the total valuation. Here’s an example using our above scenario:

Section Weighting Score Factor
Management team 30% 120% 0.36
Opportunity timing 20% 100% 0.2
Opportunity size 20% 110% 0.22
Product/service/technology 15% 95% 0.14
Competition/environment 5% 120% 0.06
Sales/partnerships/marketing 5% 90% 0.045
Other (hiring, buzz, etc.) 5% 130% 0.065
TOTAL 100% $1,090,000

The Scorecard Method is best for pre-seed or early-seed startups.

The Venture Capital Method

The Venture Capital Method of valuing your startup is generally used by investors who are looking for a short to intermediate-term investment and want to cash out within a few years.

The method starts with the terminal value, which is the price at which the investors believe the startup could sell for at a predetermined date in the future. The return on investment (ROI) is then generated from the terminal value and the required investment (e.g. 120% ROI).

The pre-money valuation and the post-money valuation can then be calculated as such:

  • Post-money valuation = Terminal value divided by expected ROI
  • Pre-money valuation = Post-money valuation minus investment

The venture capital method is usually used for startups that are in the pre-revenue stage.

Now that you know the four most common methods of startup valuation, you can better assess your business and put yourself in a stronger negotiating position with potential investors. It’s important to remember that these valuations are not set in stone — they are simply guidelines to help both parties understand the worth of the startup. If you have a strong business case and can demonstrate traction, it is likely that an investor will be willing to pay more than what is suggested by any one method.

If you’d like to know more about how to get funding for your startup, please do contact us at InCorp. We have a team of expert lawyers, bankers, and accountants, who are ready to help. Make your move today!

FAQs on Raising Your Startup Value in Singapore

  • There are various methods to determine the value of a startup, including the First Chicago Method, the Berkus Method, the Scorecard Method, and the Venture Capital Method.
  • We recommend between 0.1 to 0.5 percent of the company for formal advisors to the startup business.
  • Angel investors typically want 20-25% return on investment on your company, while Venture Capitalists may want even more. If your startup is in its early stages and the product/service is still in development, investors may want as high as 40% of the business to compensate for the risk.

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About the Author

InCorp Content Team

InCorp's content team includes talented copywriters from our regional group and globally. We contribute informative, thought leadership, and market-trending articles to guide aspiring business entrepreneurs to a higher level across the Asia-Pacific region.

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