Valuations 101: The Cayenne Calculator

We recently started a series of posts on establishing the pre-money valuation of pre-revenue startup companies for purposes of investment by seed and startup investors.

The High Tech Startup Valuation Estimator is an online tool developed by Cayenne Consulting to assist entrepreneurs and investors in estimating the pre-money valuation of startup enterprises. This calculator uses 25 questions to size up the progress of the new venture and calculate a pre-money valuation for investment purposes.  In many cases, the outcome from answering these 25 questions indicates that the company has not made sufficient progress in development to justify investment.  When a valuation range is provided, it could be as low as $480,000-$580,000 or as high as $36-44 million; so this tool is clearly not limited to use on pre-revenue companies.

Users of the Cayenne Calculator are encouraged to answer first answer all 25 questions as conservatively as possible, to determine a minimum valuation for the venture.  It is very easy for optimistic users to quickly arrive at unreasonable pre-money valuations for startup ventures.  Furthermore, users are encouraged to experiment with this tool to determine the most sensitive questions driving the calculated solution.  Use the most pessimistic responses to calculate valuation.  Then, repeatedly input the calculator with somewhat more optimistic responses, in an attempt to arrive at a reasonable valuation; one that is in line with other valuation methodologies.  When used in this manor, this Cayenne calculator can be quite useful.

Best practice for angels investing in pre-revenue ventures is to use multiple methods for establishing the pre-money valuation for seed/startup companies.  The Cayenne Valuation Calculator is useful as one such method.   In recent posts, I have described the Scorecard Method, the Venture Capital Method and the Dave Berkus Method as other important methodologies for determining the pre-money valuation of pre-revenue seed/startup ventures.  In future posts, I will describe additional methods.

 

Bill Payne , Angel Investor , Frontier Angel Fund
November 7th, 2011