Valuation is an important step to complete for every startup. Valuation is an essential part of getting the right amount of funding when starting up. However, valuation is just as important for investors, since it places a value on their investments. While there are plenty of valuation methods, many startups choose to use market-based valuation for several reasons.
According to studies complied by Northeastern University and its online Master of Science in Finance department, market-based valuation is done by using the value of other existing businesses that are comparable to the startup being reviewed. Market-based valuation is very easy to understand and is usually accepted by both parties – the startup owner and investors. That said, this method of valuation does not always capture the actual value of the business.
If you want to learn more about startup valuation, The Key to Valuation infographic by Northeastern University has more information on the subject.