What’s Your New Venture Worth?

There are several different ways for investors can place a value on a venture so they can systematically determine for themselves how much equity their investment should purchase.

THE THREE MOST POPULAR WAYS ARE:

• The Harvard Method

• The Berkus Method

• The Scorecard Method

The Harvard Method

The Harvard Method, also called “The Venture Capital Method”, depends on projections of future earnings.

First, you estimate / project the Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) 3-5 years out.

Next determine an appropriate valuation multiple based on the industry and the size of the company which gives a projected acquisition value, EBITDA X Valuation Multiple = Acquisition Price. Finally discount to the current point in time, yielding a current value for the company.

There is a lot of room for adjusting the numbers, because the ‘method’ depends on:

• The EBITDA projection

• The Valuation Multiple

• The Discount Factor

For example:

Earnings are projected to be $100,000 in 3 years

• Valuation Multiple is 5

• Company will be worth $500,000

• A 50% ownership will be worth $250,000

• For a 500% (5x) return, invest $50,000 today for 50% of the company

• For a 1000% (10x) return, invest $25,000 today for 50% of the company

Most angel investors want a chance at a greater return than 5x, because they realize that many of their investments will not pay off at all. They want – and need – a chance at a home run to be successful in the long run.

The Berkus Method

The Berkus Method is name for Dave Berkus, a prominent angel investor from southern California. The method was first published in 2001 and has a lot of variations. But generally, the value of a company today is calculated based on the progress the company has made. The method assigns a current maximum value of $500,000 for each of the following:

• Sound Idea

• Prototype

• Quality Management Team

• Strategic Relationships

• Product Rollout or Sales

The angel investor gets to decide how much to value to attribute to each of the elements with maximum value being $2.5 million. It is similar to putting value on a piece of real property based on the cost to replace it in both time and money.

The Scorecard Method

The Scorecard Method is very popular, because every angel investor or angel group gets to develop their own scorecard. Generally, a company is rated in several categories and the total score is used to project a value relative to other companies of similar size in the same industry.

Here’s an actual scorecard evaluation completed by the Angel Investors Network a few months ago for one of our clients. They hired us to analyze their offering in order to close some of their gaps and be better prepared for conversations with prospective investors.

As you can see, the big red flag was in their progress- they had done very little market testing. They had created a prototype, but it wasn’t in the hands of customers yet and they had no sales or sales pipeline.

Summary

These are just three of the methods that you can use, and investors will use, to determine the value of your company today. It is recommended that you use multiple methods and be prepared to back up your valuation claim with an intelligent conversation on all of the methods.

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John Reighard, Partner & EVP

John Reighard is a Partner at Angel Investors Network, where he leverages his expertise in business development, networking, and investor relations to help entrepreneurs secure funding and scale their businesses. With a passion for connecting people and ideas, John plays a pivotal role in fostering strategic partnerships and guiding business owners toward sustainable success. In addition to his work with Angel Investors Network, he also owns and operates two other small businesses.

 

A Connector and Networking Extraordinaire, Business Coach/Consultant, and Inspirational Speaker, John is deeply committed to helping individuals and businesses achieve meaningful results. His mission is to empower entrepreneurs and leaders to create lasting impact through strategic growth, financial acumen, and powerful relationship-building.

 

John has trained with, been mentored by, and provided consulting services to some of the world’s top thought leaders in personal development and business transformation, including Jack Canfield (America’s #1 Success Coach and Founder of Chicken Soup for the Soul), Stephen Covey, T. Harv Eker, Bob Proctor, Blair Singer, Robert Kiyosaki, Neil Rackham, Marcia Wieder, and Roger (Bud) Seith. These experiences have shaped his ability to guide clients through personal and professional growth, helping them unlock their full potential.

 

Before joining Angel Investors Network, John took a sabbatical in 2002, living with his family in Norway, Portugal, and France—an enriching experience that followed 15 award-winning years in Silicon Valley. During his time in the tech industry, he worked for leading companies such as Lucent Technologies, Exodus Communications, Octel Communications, and Brady Corporation.

Meet Jeff Barnes

Jeff Barnes is a former US Navy Nuclear power plant operator on a Submarine, Navy diver, risk management director, technology enthusiast, business growth expert, advisor and management consultant. Mr. Barnes sits on the boards of startup companies, runs a venture fund, supports non-profits supporting military vets, and spends most of his time helping CEOs and founders of growing companies automate, systemize, and scale to 8 and 9-figure valuations.

 

With over 20 years of technology, systems, operations, and marketing experience, Mr. Barnes has advised over 1,000 companies, invested tens of millions in advertising campaigns, and helped companies generate over $1 billion in investment capital.

 

As the chairman of Angel Investors Network and founder of Digital Evolution Marketing Group, Mr. Barnes has worked with founders, entrepreneurs, and CEOs around the world to accelerate the growth of their businesses and achieve substantial exits. He’s a father, husband, veteran, business owner, advisor, and mentor, and his true passion in life his helping others achieve success, freedom, and autonomy in theirs.