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How does a VC value a business?

By on March 3, 2011

Together with Nic Brisbourne of The Equity Kicker / DFJ Esprit, I am writing a series of 50 questions you should ask when raising venture capital. We expect the series to run for a year, after which we will collate the answers into a book. We view this as a collaboration, so please comment to help make this series even more useful. This is post #14 in the series.

What is my business worth?’ is a question every entrepreneur and investor asks themselves all the time. Then when it comes to selling the company or raising money the question shifts subtly to ‘what value will the investor/acquirer place on my business?’. The answer to the second question is often lower than the answer to the first one.

This week, Nic answers the question by explaining:

  • the right way for a VC to value a company,
  • the rules of thumb VCs use to sense check and short cut the proper analysis
  • the impact of market forces on the numbers thrown out by the first two.

You can read the full post at The Equity Kicker.

Hungry for more? Go to the 50 questions homepage for more insights into venture capital.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: